Case No: A3/2003/1167
Neutral Citation Number: [2004] EWCA Civ 487
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION
COMMERICAL COURT
Mr Justice Moore-Bick
[2003] EWHC 1032 (Comm)
Royal Courts of Justice
Strand, 
London, WC2A 2LL

Wednesday 28th April 2004
Before :

THE PRESIDENT
LORD JUSTICE CLARKE
and
LORD JUSTICE SEDLEY

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Between :

	(1) NIRU BATTERY MANUFACTURING COMPANY
(2) BANK SEPAH IRAN 	Claimants	
	- and -		
	(1) MILESTONE TRADING LIMITED
(2) MARITIME FREIGHT SERVICES LIMITED
(3) ALI AKHBAR MAHDAVI
(4) CREDIT AGRICOLE INDOSUEZ
(5) SGS UNITED KINGDOM LIMITED	Defendants	

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(Transcript of the Handed Down Judgment of
Smith Bernal Wordwave Limited, 190 Fleet Street
London EC4A 2AG
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Mr Michael Bloch QC and Miss Tiffany Scott (instructed by Clyde & Co) for the  Fourth Defendant/Appellant
Miss Geraldine Andrews QC and Miss Zoe O’Sullivan (instructed by Ashurst) for the Fifth Defendant/Respondent 
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Judgment
As Approved by the Court
Crown Copyright ©

Lord Justice Clarke: 
Introduction
1.	This is the second appeal which this constitution of the Court of Appeal has heard from decisions of Moore-Bick J in this action.  In the first appeal, in judgments delivered on 23 October 2003, reference [2003] EWCA Civ 1446, we dismissed the appeals of both Credit Agricole Indosuez (“CAI”) and SGS United Kingdom Limited (“SGS”) against the order made by the judge on 17 July 2002 giving judgment against them.  The judgment was in the sum of US$5,712,762 together with interest and costs in favour of the claimants, Niru Battery Manufacturing company (“Niru”) and Bank Sepah Iran (“Bank Sepah”), and was given jointly and severally against Mr Mahdavi, CAI and SGS, who were the third, fourth and fifth defendants respectively.
2.	As indicated in paragraphs 2 and 3 of my judgment in the first appeal, the bases of the judge’s judgment were as follows.  Mr Mahdavi was held liable in the tort of deceit, as a constructive trustee of monies obtained from Bank Sepah by fraud and as an accessory to a breach of trust.  The claim against CAI failed in the tort of deceit but succeeded in restitution on the basis that the circumstances in which it paid money away did not afford it a defence to the claimants’ claim.  The claim against SGS succeeded on the basis that it was in breach of a duty of care owed to the claimants.  After judgment had been given, it was agreed between the parties, without argument before or determination by the judge, that judgment should be given both jointly and severally against CAI and SGS.
3.	In the first appeal SGS appealed on the basis that the judge was wrong to hold that it owed a duty of care to Niru, that it was in breach of that duty and that the breach caused the loss.  The appeal failed on all three grounds, with the result that the position remains that SGS was correctly held liable to the claimants in tort for damages for negligence.  As to the position of CAI, Niru and SGS submitted that the judge was wrong to acquit CAI of deceit, while CAI submitted that, having acquitted CAI of dishonesty, he was wrong to hold that it was liable in restitution but should have held that it had a defence of change of position.  We concluded that the judge was entitled to acquit CAI of dishonesty and deceit but that, given his conclusions as to the circumstances in which it paid the monies away on the instructions of Mr Mahdavi, he was correct to hold that CAI was liable in restitution.  I shall return to the basis of our conclusions below.
4.	This appeal arises out of the contribution proceedings between CAI and SGS, which themselves have a somewhat unusual history, as the judge himself explained in his judgment of 8 May 2003.  It is that judgment which has given rise to this second appeal.  CAI and SGS issued Part 20 proceedings against each other seeking contribution under section 1 of the Civil Liability (Contribution) Act 1978 (“the 1978 Act”).  At the trial it was common ground between them that if they were both liable they could claim contribution from each other under section 1 of the 1978 Act, even though SGS might be liable in tort and CAI in restitution.
5.	That was common ground because of the decision of this court in Friends’ Provident Life Office v Hillier Parker May & Rowden [1997] QB 85 in which it was held that the 1978 Act enabled contribution to be claimed in such  circumstances.  Both CAI and SGS argued their cases on contribution at the trial on that basis, the argument being almost entirely directed to the relative responsibilities of SGS and CAI for the loss that Niru had suffered.  Under section 2(1) of the 1978 Act the amount of contribution recoverable is to be such as may be found to be just and equitable having regard to the extent of the contributor’s responsibility for the damage in question.  The judge considered the relative extent of the responsibility of CAI and SGS and prepared a draft judgment in which he concluded that they were equally responsible.  He included his conclusions in his principal judgment and distributed it to the parties in draft in the ordinary way.    
6.	However, before the judgment was formally handed down, the judge’s attention was drawn to the decision of the House of Lords in Royal Brompton Hospital NHS Trust v Hammond [2002] UKHL 14, [2002] 1 WLR 1397, in which Lord Steyn, with whom the rest of their Lordships agreed, disapproved the part of the judgment in the Friends’ Provident case that had underpinned the parties’ approach to the question of contribution.  The judge therefore delivered judgment in the main action and adjourned the Part 20 proceedings for further argument in order to allow the parties to consider and subsequently to address him on the effect of that decision.  
7.	Before a further hearing could be held there were what the judge called two further significant developments.  The first was that the claimants had entered judgment against SGS and CAI jointly and severally pursuant to an order the terms of which were agreed between all parties to the action.  The claimants had decided to look to SGS alone to satisfy the judgment and it had done so.   The result was that by the time that the issues between SGS and CAI came to be argued before the judge SGS had paid the whole of the judgment, including a sum that he had ordered to be paid on account of the claimants’ costs, and CAI had paid nothing.  Also by then both parties had reflected on the implications of the Royal Brompton Hospital case in the light of these further events.
8.	As a result SGS sought (and was granted) permission to amend its particulars of claim in the Part 20 proceedings to add to its existing claim for a contribution under section 1 of the 1978 Act claims for relief by way of subrogation, recoupment and contribution based on the satisfaction of the judgment.  SGS now submitted that it was entitled to recover the whole of the amount which it had paid by way of subrogation and/or recoupment.  It further submitted that section 1 of the 1978 Act applied notwithstanding anything said in the House of Lords in the Royal Brompton Hospital case and that it would be just and equitable for CAI to bear either the whole or the majority of the loss.  
9.	Mr Bloch QC submitted to the judge on behalf of CAI that neither the principles of subrogation nor those of recoupment assisted SGS and that he should follow the opinion expressed by Lord Steyn in the Royal Brompton Hospital case and hold that the 1978 Act has no application in a case of this kind.  Alternatively he submitted (as I understand it) that the judge should apportion the loss equally between CAI and SGS as set out in his draft judgment.
10.	The judge held that SGS was entitled to be subrogated to Niru’s claim against CAI and that it was entitled to recover the whole of the amount it had paid to Niru in respect of its liability for principal and interest. He accordingly gave judgment for SGS against CAI in the total sum of US$7,087,034.80.  He further held that SGS was not entitled to recover by way of recoupment and, on contribution, that he should follow Lord Steyn and hold that the 1978 Act has no application as between those liable in damages and those liable in restitution.
11.	This second appeal is brought by CAI pursuant to permission granted by the judge.  Mr Bloch QC submits on behalf of CAI that the judge was wrong to hold that SGS is entitled to be subrogated to Niru’s claim against CAI, although, if I understand him correctly, he submits that if that is wrong the court can and should hold that SGS is only subrogated so far as it is just and equitable in all the circumstances.  Miss Andrews QC submits on behalf of SGS that the judge was right on subrogation but wrong on recoupment.  She also submits if necessary that the judge was wrong to hold that the 1978 Act has no application as between SGS and CAI and that he should have awarded 100 per cent contribution in favour of SGS.  She submits that the judge’s view expressed in his draft judgment in this regard was wrong.
12.	I should note in passing that the judge treated the orders for costs differently.  He held that the principles of subrogation and recoupment had no application to costs because the liability to costs arose out of the proceedings themselves.  He held that SGS was entitled to a contribution from CAI in respect of what it had paid in satisfaction of that part of the judgment and assessed the contribution at 50 per cent.  Neither SGS nor CAI challenges that conclusion in this appeal, which is therefore concerned only with liability for principal and interest.  In this regard it seems to me to be convenient first briefly to consider the facts then to consider subrogation, recoupment and contribution.
The facts
13.	The facts were set out in great detail in the original judgment of the judge, [2002] EWHC (Comm) 705, and summarised in paragraphs 4 to 26 of my judgment in the first appeal.  I shall not repeat them here save in so far as necessary to understand the issues in this appeal.  For present purposes it is sufficient to summarise the facts in much the same way as the judge did in his second judgment. 
14.	These proceedings arise out of a contract for the sale by Milestone Trading Limited (”Milestone”) to Niru of 10,000 metric tons of lead ingots made in February 1998 which provided for payment by letter of credit against presentation of (among other documents) FIATA multimodal transport bills of lading and an inspection certificate issued by SGS.  In due course a letter of credit was opened by Bank Sepah in favour of Milestone.  Milestone was one of a group of companies known as the “Woralco” group controlled by Mr Mahdavi.  It had no significant assets of any kind and was used by the Woralco group as a single purpose vehicle for entering into the contract with Niru.
15.	In order to obtain the lead needed to perform its contract with Niru, Milestone, acting through Mr Mahdavi, obtained financing from CAI against the deposit of the warehouse warrants relating to the goods.  The warrants, possession of which gave CAI complete control over the goods, were to be released to Milestone only on repayment of the advance.  However, the letter of credit represented Milestone’s only source of funds and it therefore became necessary for Mr Mahdavi to find a way in which documents could be presented for payment before the warrants had been released by the bank.  That was achieved by enlisting the help of the second defendant, Maritime Freight Services Ltd (“Maritime”), which was prepared to issue a FIATA bill of lading stating that it had taken the goods in charge for carriage to Iran at a time when CAI still held the warrants and the goods themselves were still in the warehouse.
16.	Most of the lead that Milestone intended to deliver was held in a warehouse at Gothenburg; the remainder, about 2,000 metric tons, was held in a different warehouse at Helsingborg.  By the time Maritime issued its bill of lading SGS, acting on instructions from Milestone, had already inspected, sampled and tested the goods at Gothenburg.  On being informed that Maritime had issued a bill of lading recording that it had taken the goods in charge for carriage to Iran, SGS issued an inspection certificate in which it certified, among other things, that the goods were marked with the name of Niru and that the quality, quantity and packing of the goods loaded complied with the contract.  The certificate was inaccurate in two respects: the goods were not marked with Niru’s name and had not been put under the control of Maritime, let alone loaded on to any form of transport.  The judge held that SGS was negligent in issuing the certificate and therefore liable to Niru in tort.  As already stated, SGS’ appeal against that finding failed in the first appeal.
17.	The documents, including the bill of lading and the inspection certificate, were presented to Bank Sepah under the letter of credit by CAI, which presented them as a principal.  After some minor discrepancies had been corrected, the documents were accepted by Bank Sepah, but it was unable to make payment because the authorities in Iran failed to make the necessary foreign currency available.  The price of lead began to fall causing CAI to become concerned about the adequacy of its security and eventually, after consulting Mr Mahdavi but without telling Bank Sepah or Niru, it sold the goods to reimburse itself.  Then, somewhat to everyone’s surprise, funds were made available to enable Bank Sepah to honour the letter of credit and a sum of about US$5.8 million was remitted to CAI for payment to Milestone.  The officer responsible for Milestone’s account, Mr Francis, knew that the bank had sold the lead that was to have been delivered under the contract and had assumed that the transaction was dead.  He was unsure, therefore, how to respond to the receipt of the funds, but having spoken to Mr Mahdavi he was persuaded to release them to another company in the Woralco group, Nikam Metal Finance Ltd.  Needless to say (as the judge put it) they were subsequently lost.  
18.	In the result no goods were delivered to Niru by Milestone, or by any other company under the Mahdavi umbrella.  Niru was, however, out of pocket because, pursuant to its counter-indemnity, Bank Sepah had debited its account with the full amount of the payment.  In short, Niru had been induced to part with the sum of US$5.8 million and received nothing in return other than the sum of US$116,760 which was paid under a performance guarantee provided by Milestone under the contract.
19.	The judge held that CAI had been unjustly enriched by the receipt of the funds from Bank Sepah and that it could not rely on change of position as a defence to a claim in restitution because it had failed to act in good faith when dealing with the funds.  The judge also held that, although the funds had been remitted by Bank Sepah, Niru was entitled in the circumstances of this case to recover against CAI in restitution.
20.	As already indicated, CAI’s appeal against liability failed in the first appeal.  My own reasons for reaching that conclusion are set out in paragraphs 145 to 170 of the judgments in the first appeal and those of Sedley LJ are set out in paragraphs 176 to 192.  I detect no significant difference between us.  The key parts of my own conclusions, so far as they are relevant to this appeal, can be seen from the following quotation from my earlier judgment:
“167.	I set out the judge’s findings of fact in this regard in paragraph 122 above.  On those findings, especially those in paragraphs 120 and 121 of the judgment, Mr Francis did not know that a false bill of lading had been presented to Bank Sepah in order to obtain payment under the letter of credit but he knew that CAI had sold the warrants (and thus the lead) which formed the basis of the transaction and that the transaction could not therefore be completed.  He therefore realised that Bank Sepah must have paid by reason of a mistake.  Moreover, as the judge put it in paragraph 121 of his judgment, a moment’s reflection would have led Mr Francis to appreciate that the reason given by Mr Mahdavi for wishing to retain the money did not justify the course he was asking the bank to take.  In these circumstances the judge was entirely justified in saying at the end of paragraph 121:
“Thus, on the facts as Mr Francis understood them, nothing said by Mr Mahdavi actually undermined Bank Sepah’s right to repayment of the money.”
168.		In these circumstances, having realised that Bank Sepah had paid by mistake, to my mind, good faith required Mr Francis to enquire of Bank Sepah before paying the money away in accordance with Mr Mahdavi’s instructions and the judge was correct so to hold.  As I read his judgment, the judge acquitted Mr Francis of dishonesty because he did not consciously act in disregard of the standards to be expected of the ordinary honest banker.  The judge I think took the view that Mr Francis’ state of mind was that CAI owed no duty to Bank Sepah, which could look after itself, but that CAI did owe a duty to its customer and in those circumstances paid the money away in accordance with Mr Mahdavi’s instructions.  The judge thought that that was misguided but not dishonest.  As indicated earlier, it is my view that the judge was entitled to reach those conclusions.
169.	On the other hand, the judge concluded that good faith required a person in Mr Francis’ position who realised that the money had been paid by mistake to make enquiries of Bank Sepah to ascertain the position and not to pay the money away in the meantime.  I have reached the clear conclusion that he was correct so to hold.  This is, at the very least, an example of the case of the kind of bad faith expressly mentioned by Lord Goff in Lipkin Gorman and quoted in paragraph 146 above, namely where a person “has changed his position in bad faith, as where the defendant has paid away the money with knowledge of the facts entitling the plaintiff to restitution”.  Here, on the judge’s findings of fact, when the money was paid away, Mr Francis (and thus CAI) knew the facts which entitled Bank Sepah to restitution, namely that it had paid under a mistake of fact.
170.	In all these circumstances the judge was in my opinion correct to hold that CAI did not act in good faith in paying the money away and that it would be inequitable or unconscionable to deny Bank Sepah a right to restitution by repayment of the monies paid under the letter of credit.  I would dismiss CAI’s appeal under this head.”

21.	In the light of those conclusions I summarised my view in paragraph 171(v) and (vi) by saying that as I saw it the essential question is whether on the facts of a particular case it would in all the circumstances be inequitable or unconscionable, and thus unjust, to allow the recipient of money paid under a mistake of fact to deny restitution to the payer and that on the facts the judge was entitled to hold that it would be inequitable, unconscionable and unjust to deny restitution to Bank Sepah of the monies paid under the letter of credit.  As I read it, Sedley LJ’s reasoning is to the same effect and the President agreed with us both.
Subrogation 
22.	Miss Andrews’ submissions both before the judge and before us may be summarised in this way.  Having satisfied the judgment, SGS was entitled to be subrogated to Niru’s rights against CAI (except in so far as the judgment related to costs) and was thus entitled to obtain a full indemnity in respect of the sum it had paid.  SGS had been compelled by law to compensate Niru in full; by doing so it conferred a benefit on CAI by relieving it from any obligation to pay Niru; CAI was initially unjustly enriched at the expense of Niru and was now unjustly enriched at the expense of SGS; accordingly, SGS should be granted the remedy of subrogation in order to prevent that unjust enrichment.  
23.	As the judge observed in paragraph 28 of his judgment, this argument depends, at least in part, on the proposition that CAI continued to be unjustly enriched as a result of receiving the funds transferred to it by Bank Sepah.  Mr Bloch resisted the submission on several bases but the judge ultimately accepted Miss Andrews’ submissions after considering a number of authorities, notably Banque Financière de la Cité v Parc (Battersea) Ltd [1999] 1 AC 221. 
24.	He expressed his conclusions in this way in paragraph 54:
“If SGS were denied relief in the present case CAI would in my view be unjustly enriched at its expense, CAI was unjustly enriched by the receipt of the money from Bank Sepah and as a result became liable to restore it, CAI did not cease to be liable when it parted with the money: on the contrary, it remained liable because it had received a benefit which it was bound to restore.  That liability merged in the judgment and came to an end only when, and by reason of the fact that, the judgment was satisfied in full by SGS.  SGS was not responsible for CAI’s decision to part with the money: that was the result of a combination of Mr Mahdavi’s insistence that the bank follow his instructions and its own failure to act in good faith.  CAI has been relieved of liability at the expense of SGS and as a party liable to make restitution on the grounds of unjust enrichment I do not think that in relation to SGS it can be treated as if it did not receive the benefit on which its liability was based, any more than it could in relation to Niru.”

25.	That reasoning seems to me to be compelling and, for my part, absent any authority to the contrary, I would follow it.  Moreover, I agree with the view expressed by the judge in paragraph 55 of his judgment that the point can be tested by reference to the position which would have arisen if CAI had retained the money which it had received from Bank Sepah instead of paying it away in accordance with Mr Mahdavi’s instructions.  
26.	It is convenient to consider the position in different factual situations as follows:  (1) Niru sues both SGS and CAI and obtains judgment against them both jointly and severally and CAI satisfies the judgment; (2) Niru sues both SGS and CAI and obtains judgment against them both jointly and severally and SGS pays the judgment debt in circumstances in which CAI still holds the money received from Bank Sepah;  (3) Niru sues both SGS and CAI and obtains judgment against them both jointly and severally and SGS pays in circumstances in which CAI had paid money away and has no change of position defence (this case); and (4) Niru sues SGS but not CAI and obtains judgment against SGS which SGS satisfies.
27.	Before considering these particular situations, it is appropriate to refer to what I agree with the judge is the leading modern authority on the equitable remedy of subrogation, namely the Banque Financière case.  In that case, as the judge observed in paragraph 29 of his judgment, Lord Hoffman, with whom the majority of the other members of the House agreed, drew a distinction between contractual subrogation of the kind most commonly encountered in connection with contracts of insurance and subrogation in equity.  He pointed out that the former is founded upon the common intention of the parties whereas the latter is an equitable remedy designed to reverse or prevent unjust enrichment.  It does not depend on agreement between the party enriched and the party deprived but upon principles of restitution.  
28.	Lord Hoffmann summarised the principles governing the availability of the equitable remedy in the following terms at page 234C-D:
“I think it should be recognised that one is here concerned with a restitutionary remedy and that the appropriate questions are therefore, first, whether the defendant would be enriched at the plaintiff’s expense; secondly, whether such enrichment would be unjust; and thirdly, whether there are nevertheless reasons of policy for denying a remedy.”
I return to the examples which I identified above with that general approach in mind.
29.	It is common ground that in the first of the examples CAI would not be entitled to stand in Niru’s shoes and sue SGS in order to recover the amount it had paid to Niru by exercising a right of subrogation.  There would in those circumstances be no question of SGS being unjustly enriched by CAI’s payment.  Indeed, if CAI had paid back the money in the first place instead of paying it away on the instructions of Mr Mahdavi, as it ought to have done and as it would have done if it had been acting in good faith, Niru would have suffered no loss and SGS would not have been liable to Niru.  The only basis upon which CAI might be able to proceed against SGS in those circumstances would be under the 1978 Act, to which I will return briefly below.          
30.	In the second example, where CAI retains the money in circumstances in which it should have repaid it, but SGS discharges a joint and several liability with CAI by paying the whole judgment debt to Niru, I do not think that there can be any doubt but that SGS would be entitled to recover the whole of the amount that it had paid from CAI.  Any other solution would leave CAI holding monies which, if acting in good faith, it would have repaid to Bank Sepah and thus to Niru.  The effect of allowing CAI to retain any part of the monies would be tantamount to affording it a defence of change of position, at least in part, in circumstances in which it had failed to make out such a defence.  It was no doubt for this reason that Mr Bloch did not feel able to submit that, if CAI had retained any of the monies paid to it by Bank Sepah, it could have retained them as against SGS.
31.	Moreover, as I see it, that would have been the position regardless of the reason why the monies were mistakenly paid to CAI by Bank Sepah.  Thus in my opinion it would make no difference if the mistake was the result of carelessness on the part of Niru or Bank Sepah or negligence on the part of SGS.  I briefly considered the case of carelessness on the part of the payer in paragraphs 160 and 161 of my judgment in the first appeal by reference to the decision of the Privy Council in Dextra Bank & Trust Co Ltd v Bank of Jamaica [2002] 1 All ER (Comm) 193, where the judgment of the Judicial Committee was given by Lord Bingham and Lord Goff.  The Privy Council rejected the propriety of introducing a concept of relative fault into a determination of whether the recipient of money paid under a mistake of fact or law was obliged to repay it: see the discussion at paragraphs 40 to 46.  
32.	It was no doubt for that reason that no-one suggested to us in the course of the first appeal that it was sufficient to show that CAI was negligent in order to defeat a defence of change of position or, indeed, that carelessness on the part of Niru or Bank Sepah would be relevant to the defence of change of position.  The view of the Judicial Committee can be seen from paragraph 45 of the judgments in Dextra:
“Their Lordships are, however, most reluctant to recognise the propriety of introducing the concept of relative fault into this branch of the common law, and indeed decline to do so.  They regard good faith on the part of the recipient as a sufficient requirement in this context.”
Lord Hoffmann expressed a strong view to the same effect in the Banque Financière case at page 235E-G.
33.	It seems to me that, if carelessness is not sufficient to defeat a claim of this kind by the payer, there is no good reason for holding that negligence on the part of someone else which caused or contributed to the mistaken payment is sufficient.  That is because, as Lord Bingham and Lord Goff put it, relative fault is irrelevant and good faith on the part of the recipient is a sufficient requirement for the defence of change of position.  By contrast, lack of good faith is to my mind a sufficient basis for holding that the recipient who has failed to repay the money in good faith and who still holds the money is bound either to repay the money to a careless payer or to pay it to a person in the position of SGS in the example, whose negligence has made it liable to the payer.  There would have been no such liability if the recipient had acted in good faith.
34.	The third example is this case.  For my part, I do not see that there is any difference in principle between the second and third examples.  Thus I see no distinction in principle between the position of the recipient who retains the money and the recipient who has paid it away otherwise than in good faith.  In both examples the recipient seems to me to be unjustly enriched.
35.	Mr Bloch submits that that conclusion is wrong and would involve an unnecessary and undesirable extension of the categories of case in which subrogation has traditionally been recognised by the courts.   A key reason for that submission is that it would have the undesirable effect that CAI would be liable in full in circumstances in which the judge had expressed the view in his first (albeit draft) judgment that SGS and CAI were equally to blame.  Not unnaturally in the light of that view, it was an underlying theme of Mr Bloch’s submissions that there was nothing to choose between SGS and CAI and that a solution which left CAI to bear the whole liability would be unjust and thus inequitable.
36.	However, in my judgment, that is not a sound foundation upon which to build a convincing submission.  In their written submissions Mr Bloch and Miss Scott submitted (in paragraph 6) that SGS had been found to be at fault for failing to fulfil its duty of care to Niru whereas CAI had been found liable to restore monies received in error on what might be termed a ‘no-fault’ basis.  They submitted that CAI could not raise a defence to Niru’s claim because of a ‘commercial’ failure to have regard to Niru’s interests.  To my mind, that is not an accurate way of putting the true position.  It is correct that SGS’ liability was based on a breach of a duty of care or, to put it shortly, negligence but it is wrong to regard CAI’s liability as no-fault liability or as based on a ‘commercial’ failure to have regard to Niru’s interests.
37.	As indicated in the authorities, including Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548, especially per Lord Goff at pages 579 and 580, and the Dextra case, especially in paragraph 45 quoted above, a recipient in the position of CAI would have a defence of change of position only if it acted in good faith and would not have such a defence if it acted in bad faith.  In the instant case CAI acted in bad faith in paying the monies away.  In these circumstances (as already indicated) it is to my mind be treated, both as between itself and Niru and as between itself and SGS, in the same way as if it retained the monies.  It does not seem to me to be appropriate to treat CAI and SGS as equally responsible.  It is true that SGS was careless (and thus negligent because of the duty of care owed to Niru) but it would not have been liable if CAI had not paid the money away in bad faith because Niru’s cause of action would not have been complete.  For the reasons already given, just as Niru’s carelessness would have afforded CAI no defence to its claim, so SGS’ carelessness or negligence should not in my opinion afford CAI any defence to SGS’ claim (as it were in Niru’s name), now that SGS has discharged its liability to Niru.
38.	This approach seems to me to be consistent with the approach of this court in the recent case of McDonald v Coys of Kensington [2004] EWCA Civ 47.  In that case Mr and Mrs Cressman instructed Coys, who were auctioneers, to sell a Mercedes car at auction but expressly instructed them not to sell the car’s personalised number plate TAC 1.  Coys sold the car to Mr McDonald, who asserted that the sale included the number plate.  The Cressmans sued Coys for damages for breach of contract and Coys settled their claim for £12,000 plus interest, which amounted to £13,608.12 in all.  The Cressmans also assigned to Coys all and any causes of action against Mr McDonald.  Coys subsequently sued Mr McDonald alleging that he had been unjustly enriched by receiving, at the expense of the Cressmans, a benefit in the form of the number plate which was valued at £15,000 which he knew or ought to have known he was not contractually entitled to have.  
39.	The trial judge so held and awarded Coys a total of £15,000.  He awarded £1,391.88 under the assignment and £13,608.12 as contribution to Coys’ liability to the Cressmans on the basis that both Coys and Mr McDonald had been liable to the Cressmans in respect of the same damage within the meaning of section 1(1) of the 1978 Act and that it was “just and equitable having regard to the extent of [Mr McDonald’s] responsibility for the damage in question” within the meaning of section 2(1) that he should make a full 100 per cent contribution in respect of Coys’ liability to the Cressmans.  In this court it was contended that the Act did not apply because of the reasoning of Lord Steyn in the Royal Brompton Hospital case but the point was taken at a very late stage and the court refused to entertain it and decided the appeal on the assumption that the 1978 Act applied.
40.	One of the defences advanced at the trial by Mr McDonald was that he had changed his position by transferring the car and the number plate to his partner.  Both the judge and this court rejected that defence on the facts, holding that there was no such transfer.  Mance LJ (with whom Thorpe LJ and Wilson J agreed) said in paragraph 21 that, even if Mr McDonald did transfer the car to his partner, he can only have done so knowing that the car had brought with it the ‘cherished’ mark TAC 1 through some mistake and not as part of the auction bargain.  Mance LJ agreed with the judge that as soon as Mr McDonald knew that the car had brought with it the entitlement to the mark he also knew that that was something that he was not supposed to have.  
41.	Mance LJ observed in paragraph 22 that it was common ground, based on the Banque Financière case per Lord Steyn at page 227A and The Queen on the application of Charles Rowe v Vale of White Horse DC [2003] EWHC (Admin) per Lightman J at paragraphs 10-11, that four questions arise when considering a claim for unjust enrichment as follows.  (1) Has the defendant benefited or been enriched?  (2) Was the enrichment at the expense of the claimant?  (3) Was the enrichment unjust?  (4) Is there any specific defence available to the defendant (such as change of position)?  Those questions seem to me to cover essentially the same ground as the three questions posed by Lord Hoffmann set out above.
42.	On the facts of McDonald v Coys  the court answered the first three questions yes and the fourth no.  As part of his discussion of benefit Mance LJ said this in paragraph 37:
“Looking at the matter generally, I have no doubt that justice requires that a person, who (as a result of some mistake which it becomes evident has been made in the execution of an agreed bargain) has a benefit or the right to a benefit for which he knows that he has not bargained or paid, should reimburse the value of that benefit to the other party if it is readily returnable without substantial difficulty or detriment and he chooses to retain it (or give it away to a third party) rather than to re-transfer it on request. Even if realisable benefit alone is not generally sufficient, the law should recognise, as a distinct category of enrichment, cases where a benefit is readily returnable. A person who receives another's chattel must either return it or pay damages, commonly measured by reference to its value.  ….  However, Mr McDonald's insistence on keeping the mark and the absence of any obvious means of compelling its re-transfer are reasons for analysing this case in terms of unjust enrichment. Mr McDonald knew that he had not bargained or paid for the mark. The mark or its benefit was in practice easily returnable. If Mr McDonald chose to keep it, then I see every reason for treating him as benefited.” 

43.	Mance LJ said in paragraph 36 that, although Mr McDonald had not realised the value of the mark, it was a readily realisable benefit and that, if he had transferred it to his partner, that could go at most to a possible change of position defence.  In my opinion, the same is true here.  Thus I would not accept Mr Bloch’s submission that having paid the money away on Mr Mahdavi’s instructions CAI did not benefit from the payment.  
44.	In that case the court rejected the change of position defence on much the same basis as it did here.  In the light of Mance LJ’s conclusions in paragraph 21 referred to above, it was held that even if the car had been transferred to Mr McDonald’s partner, he was in possession of sufficient knowledge to exclude inequity or good faith: see paragraph 41.    
45.	On contribution Mance LJ expressed his conclusions thus in paragraphs 47 and 48:
“47.	…  The real damage lies in the [Cressmans’] continuing deprivation of the mark or its value, which was still the result of Coys' breach, but was, much more directly, the result of Mr McDonald's determination to retain and refusal to re-transfer the mark.
48.	On the hypothesis on which we must approach this part of the appeal, it was therefore open to the judge to treat both parties as causally responsible for the same damage. Bearing in mind that it is Mr McDonald who received the benefit of the mark, and that the whole proceedings would have been unnecessary had he re-transferred the mark to the estate's order as he should have done, the judge's conclusion that Coys should recover 100% contribution from him appears to me unassailable in this court.” 

46.	Thus in the result Mr McDonald was left liable for the whole of the value of the benefit on the footing that the 1978 Act applied and that a contribution of 100 per cent was just and equitable having regard to the extent of Mr McDonald’s responsibility for the damage in question.  I have reached the same conclusion on the facts of this case.  The relative positions of SGS and CAI seem to me to be very different.  Although both SGS and CAI were liable for the same loss suffered by Niru, as in the Coys case the real damage was caused by CAI’s failure to repay the monies which had been paid by mistake.
47.	As indicated earlier, and as the judge observed in paragraph 55 of his judgment, if the monies had been returned to Bank Sepah immediately by CAI, as they would have been if CAI had acted in good faith, Niru would have been unable to pursue a claim against SGS because it would have suffered no loss and CAI would have had no claim against SGS either.  Although (as the judge put it) in one sense SGS would have benefited by the repayment, it could not have been regarded as unjustly enriched because it was only liable to pay the amount of loss actually sustained by Niru: see eg Receiver for the Metropolitan Police District v Croydon Corporation [1957] 2 QB 154.  The same would be true if CAI had satisfied the judgment rather than SGS.
48.	The judge plainly thought that his conclusion on subrogation represented the just result notwithstanding his earlier view that contributions of 50/50 would be appropriate under the 1978 Act.  He said in paragraph 52 that, in the light of Lord Steyn’s speech in the Royal Brompton Hospital case and the helpful arguments of counsel in the course of the adjourned contribution proceedings, it had become clear that insufficient attention had previously been paid to the question of unjust enrichment and the different nature of the defendant’s liability in each case.  I agree.
49.	It is fair to say that the judge added:
“It may be that in a broad sense SGS and CAI were equally to blame for the loss suffered by Niru, but it does not follow that there is no distinction to be drawn between them in terms of the benefit they received.  In these circumstances I do not feel constrained by the views I expressed in my final judgment to hold that consideration of justice and equity preclude relief by way of subrogation in this case.”
Mr Bloch relies upon the judge’s observation that it may be that in a broad sense SGS and CAI were equally to blame as being inconsistent with the conclusion that CAI should bear 100 per cent of the loss.  However, as I read the judgment as a whole, the judge was saying that when all the circumstances are taken into account, a solution which left CAI bearing the whole of the loss was a just result.  In any event, I have reached the conclusion that that is indeed the just solution.
50.	It seems to me that, whether by the route of subrogation, recoupment or the operation of the 1978 Act (assuming it applies) the just result is that CAI should bear the whole of the loss.  This too can be tested by considering the position if CAI still retained the monies.  In that case, I do not think that there can be any doubt that the just result would be that the whole of the sum paid should be repaid either to Niru or, in circumstances in which SGS had discharged its liability under the judgment, to SGS.  To my mind the position is no different in circumstances where CAI has paid the monies away otherwise than in good faith, any more than it was in the Coys case on the assumption that Mr McDonald had transferred the car and its number plate to his partner.  Thus, notwithstanding the views expressed by the judge the first time round, I would not accept the central thrust of Mr Bloch’s submission that SGS and CAI were equally liable for Niru’s loss, albeit under different causes of action.
51.	I would add that it seems to me that this conclusion is consistent with the approach of the House of Lords to contribution in the case of Dubai Aluminium Co Ltd v Salaam [2002] UKHL 48, [2003] 1 Lloyd’s Rep 65, where it was held that in deciding issues of contribution between a firm of solicitors held liable for dishonest assistance and two individuals who had been held to be dishonest participants in a fraudulent scheme, an important factor was the amount of money which the latter had received and retained as a result of that participation.  The facts here are of course very different but to my mind the key feature of the case is that CAI received monies under the letter of credit and did not return them.  
52.	However, Mr Bloch submits to us, as he did to the judge, that there are recognised categories of case in which the remedy of subrogation is appropriate and that this case falls outside them.  He relies upon the speech of Lord Selborne in Duncan Fox & Co v North & South Wales Bank (1880) 6 App Cas 1 at 10-11.  In short he submits that, in the absence of some prior agreement between the party seeking subrogation and the party against whom the claim is made which determines their respective liabilities, it is necessary for the claimant to show that the defendant is primarily liable in respect of the obligation in question.  Although (for the reasons given below in the context of recoupment) I would hold that CAI was primarily liable, I agree with the judge that Lord Selborne was not limiting the categories of case in which the principle might be applied in the manner suggested by Mr Bloch.  I also agree with the judge that the law of restitution based on the principle of unjust enrichment has undergone significant development since 1880.
53.	Mr Bloch placed some reliance upon the speech of Lord Diplock in Orakpo v Manson Investments [1978] AC 95 at page 104 and upon the judgment of Millett LJ in Boscawen v Bajwa [1996] 1 WLR 328.  In the Orakpo case Lord Diplock said that some rights of subrogation 
“are in no way based on contract and appear to defeat classification except as an empirical remedy to prevent a particular kind of unjust enrichment.
This makes particularly perilous any attempt to rely upon analogy to justify applying one set of circumstances which would otherwise result in unjust enrichment a remedy of subrogation which has been held to be available for that purpose in another and different set of circumstances.”

54.	Nothing in the conclusions which I have reached seems to me to be inconsistent with those views.  The same is true of the statements of Millett LJ in Boscawen v Bajwa, where he said at page 335:
“Subrogation, therefore, is a remedy not a cause of action …  It is available in a wide variety of different factual situations in which it is required in order to reverse the defendant’s unjust enrichment.  Equity lawyers speak of a right of subrogation or of an equity of subrogation, but this merely reflects the fact that  it is not a remedy which the court has a general discretion to impose whenever it thinks it just to do so.  The equity arises from the conduct of the parties on well-settled principles and in defined circumstances which make it unconscionable for the defendant to deny the proprietary interest claimed by the plaintiff.”

55.	Lord Hutton said much the same in the Banque Financière case at page 245, where he stressed the wide variety of different circumstances in which the remedy of subrogation may be appropriate.  He quoted with approval the statement from the then edition of Goff & Jones on The Law of Restitution at page 593 that:
“subrogation is essentially a remedy, which is fashioned to the facts of the particular case and which is granted in order to prevent the defendant’s unjust enrichment.”
Lord Hutton also referred with approval to parts of the passages from the Orakpo case and Boscawen v Bajwa which I have quoted above.
56.	In these circumstances, it is I think clear that the remedy of subrogation is appropriate in much wider circumstances than was submitted by Mr Bloch.  As I see it, and as stated in the Coys case, the correct approach today is to ask the questions posed by Lord Hoffmann and Lord Steyn in the Banque Financière case.  The judge answered Lord Hoffmann’s questions one and two yes and his third question no.  For the same reasons he would have answered Lord Steyn’s first three questions yes and his fourth question no.
57.	In my opinion the judge answered those questions correctly for the reasons which he gave.  The judge held that if subrogation were refused, that is if CAI were not ordered to repay SGS, CAI would be benefited or enriched at the expense of SGS and thus answered Lord Hoffmann’s first question and Lord Steyn’s first two questions yes.  His reason was that by satisfying the judgment in full SGS had relieved CAI of liability to Niru.  That is plainly correct. 
58.	Lord Hoffmann’s second question and Lord Steyn’s third question ask whether such enrichment would be unjust.  The judge held that it would.  In deciding that question he considered all the circumstances of the case and for that purpose he looked behind the judgment.  He was in my opinion right to do so for the reasons which he gave in paragraph 39 of his judgment, which it is not necessary to repeat here.
59.	I have already set out in some detail my reasons for concluding that CAI would be unjustly enriched if SGS could not recover the amount it paid to Niru under the judgment.  In short, if CAI retained the monies there can be no doubt that continued retention of them would leave it unjustly enriched.  It paid them away on the instructions of Mr Mahdavi in bad faith.  I have already expressed my view that CAI should not be in any better position by paying the monies away in bad faith than if it had retained them.  It would be unjustly enriched in either case: see paragraphs 34 to 49 above.
60.	Lord Steyn’s fourth question is whether there are any defences.  I have already expressed my view that CAI has no defence to a claim by SGS based on change of position by paying the money away any more than it had a defence to the claim by Niru on that basis.  I can think of no other defences unless there are reasons of policy for denying SGS a remedy, in which case Lord Hoffmann’s third question would have to be answered yes.
61.	In my opinion there are no reasons of public policy to deny SGS a remedy.  Mr Bloch relies upon the rule in Merryweather v Nixan (1799) 8 TR 186, as subsequently developed in the cases, namely that contribution was not permitted between tortfeasors.  However, as the judge observed, that rule did not apply as between a tortfeasor on the one hand and a person liable in equity on the other.  I can see no reason of public policy why the court should not afford SGS a remedy in equity in order to achieve what I regard as the just result.  I would accept Miss Andrews’ submission that, as the judge held in paragraph 54, if SGS is not subrogated to Niru’s rights, CAI will remain unjustly enriched, the only difference between that position and the position before the judge’s first judgment being that it will be unjustly enriched at SGS’ expense instead of at the expense of Niru.  In short, far from being contrary to public policy, it would, as I see it, be unconscionable for CAI to keep any of the money which it received by mistake and which it paid away otherwise than in good faith.   
62.	In paragraph 26 above I identified a fourth example, namely where Niru sues SGS but not CAI and obtains judgment against SGS which SGS satisfies.  That is not this case so that there is no need to discuss it in any detail.  I would only say that it seems likely to me that SGS would be able to recover in that case too.
63.	It might be objected that it is inappropriate to describe SGS as being subrogated to Niru’s rights against CAI because, once SGS discharged CAI’s obligation under the judgment, Niru no longer had any rights against CAI to which SGS could be subrogated.  However, that would be to view the matter too technically.  The principle upon which the judge relied was that of restitution by reason of unjust enrichment and, if the remedy of subrogation were not available, the correct course would not be to hold that SGS was not entitled to recover from CAI but to describe its remedy as a direct restitutionary right to payment enforceable against CAI.  However, as Lord Clyde put it in the Banque Financière case at page 237F, the remedy may vary with the circumstances of the case, the object being to effect a fair and just balance between the rights and interests of the parties concerned and in my opinion it is appropriate to describe the remedy available to SGS as subrogation.  
64.	In any event, for the reasons which I have given I would uphold the judge’s conclusion that SGS is entitled to recover the amount it paid to Niru in discharge of the judgment in accordance with the principles of the law of restitution, whether the remedy is correctly described as subrogation or not.
65.	I would only add this.  In the course of his submissions Mr Bloch suggested that it might be possible to hold that SGS’ right or remedy should be limited to something less than the whole of the liability to reflect a just balance between the parties on the facts of this particular case.  Having regard to my conclusion that the just result is that CAI should meet the whole of the judgment (except on costs), this point does not arise and I say nothing further about it.   
Recoupment
66.	Miss Andrews submits that the judge was wrong to hold that SGS’ claim against CAI does not satisfy the principles of recoupment.  Although, in the light of my conclusions on subrogation, it is not necessary to decide this question, I will shortly state my opinion on it since it was the subject of argument.  The relevant principles were stated by Cockburn CJ in Moule v Garrett (1872) LR 7 Ex 101 as follows: 
“Where the plaintiff has been compelled by law to pay, or, being compellable by law, has paid, money which the defendant was ultimately liable to pay, so that the latter obtains the benefit of the payment by the discharge of his liability: under such circumstances the defendant is held indebted to the plaintiff in the account”.

67.	The judge set out that passage and added that the principle depends upon the compulsory discharge of a liability which rested primarily on the defendant (my emphasis).  He referred to paragraph 15-001 of the 6th edition of Goff & Jones on The Law of Restitution, where the position was put as follows:
“In general, anybody who has under compulsion of law made a payment whereby he has discharged the primary liability of another is entitled to be reimbursed by that other.  …  
To succeed in his claim for recoupment, the plaintiff must satisfy certain conditions.  He must show:
(1)	that he was compelled, or was compellable, by law to make the payment;
(2)	that he did not officiously expose himself to the liability to make the payment; and
(3)	that his payment discharged a liability of the defendant.”

68.	The judge held that the payment by SGS to Niru pursuant to the judgment was a compulsory discharge of CAI’s liability under the judgment and that CAI thus obtained the benefit of it.  Miss Andrews submits that, having correctly so held, the judge should have asked himself whether, as between SGS and CAI, CAI was primarily or ultimately liable to pay Niru, that he should have considered how to answer that question by reference to the underlying circumstances and that, having done so, he should have answered the question yes.
69.	I would accept those submissions.  It seems to me that, for all the reasons already given under the heading of subrogation, the ultimate or primary liability as between CAI and SGS was indeed that of CAI.  This case is a far cry from joint (or indeed several) tortfeasors responsible for the same damage.  The crucial distinction is that already referred to, namely the fact that CAI was at no time entitled to retain or make use of the monies which it had received by mistake.  If it had acted in good faith it would have repaid the monies and SGS would not have been liable at all.  In these circumstances both law and equity should in my opinion regard CAI as primarily or ultimately liable as between itself and SGS, as that expression is used in the cases.  
70.	The reasons why the judge rejected the claim based on recoupment are set out in paragraphs 59 and 60 of his judgment:
“59.	In the present case the satisfaction of the judgment by SGS discharged CAI’s liability under the judgment, but I  do not think that of itself can be enough since the judgment was simply the means by which SGS was compelled to pay.  The question whether SGS was compelled to discharge a liability that rested primarily on CAI is one that can only be answered by reference to the underlying rights and liabilities.
 60.	The underlying liabilities of SGS and CAI were, however, quite different in nature: SGS incurred liability in tort and CAI liability in restitution.  I do not think that the payment by SGS of damages for negligence would have discharged CAI’s liability to restore the benefit it had received any more than the payment by Esso to the crofters in The ‘Esso Bernicia’ discharged the liability of Hall Russell.  In those circumstances Niru would have been unjustly enriched for the reasons explained by Lord Goff in that case and SGS would have been subrogated to its claim against CAI.  The fact that SGS has been sued to judgment does not in my view alter the position; that is simply the means by which SGS has been compelled to satisfy its own liability to Niru.  For these reasons I do not think that the present case can be brought within the principles of recoupment.”
71.	Miss Andrews submits that that reasoning is flawed and should not be followed.  She submits that in those paragraphs the judge did not consider the matter along the lines set out in paragraph 69 above.  That appears to me to be correct.  It does not seem to me that this case is like the Esso Bernicia case, that is Esso Petroleum Ltd v Hall Russell & Co Ltd [1989] 1 AC 643, where the facts were radically different from those here.
72.	For the reasons given in paragraph 69 I would hold that SGS was entitled to recover by way of recoupment as well as by way of subrogation.
Contribution
73.	I have already expressed my view as to the appropriate result on the assumption that the 1978 Act applies, namely that CAI should pay the whole amount of the judgment save as to costs.  This conclusion makes it unnecessary to consider whether the 1978 Act applies.  I will therefore add only this.
74.	It is not easy to know how we should approach the problem.  As indicated earlier, in Friends’ Provident Life Office v Hillier Parker May & Rowden [1997] QB 85 this court held that the 1978 Act enabled contribution to be claimed as between a tortfeasor and a person liable in restitution.  That conclusion was based upon what was held to be the true construction of sections 1(1) and 6(1) of the Act, which provide as follows:          
“1(1)	Subject to the following provisions of this section any person liable in respect of any damage suffered by another person may recover contribution from any other person liable in respect of the same damage (whether jointly with him or otherwise).

…

6(1)	A person is liable in respect of any damage for the purposes of this Act if the person who suffered it …. is entitled to recover compensation from him in respect of that damage (whatever the legal basis of his liability, whether tort, breach of contract, breach of trust or otherwise).”

75.	This court held in the Friends’ Provident case that in a case like the present CAI and SGS were liable in respect of the “same damage” within the meaning of section 1(1) of the 1978 Act, namely the loss sustained by Niru, and Niru was entitled to recover “compensation” from both SGS and CAI within the meaning of section 6(1).  The court gave “compensation” a broad and purposive interpretation, which was followed in Hurstwood Developments Ltd v Motor and General & Andersley & Co Insurance Services Ltd [2001] EWCA 1785.
76.	In the Royal Brompton Hospital case Lord Steyn considered the problem in some detail and agreed with the view expressed in the 5th edition of Goff & Jones at page 396 that a restitutionary claim is not one for “damage suffered” and that a claim for restitution cannot be said to be a claim to recover “compensation” within the meaning of the Act: see in particular paragraphs 26-30, 33 and 34.
77.	Although Lord Steyn described the views of Auld LJ in the Friends’ Provident case as dicta, it was common ground between the parties in the instant case that they were part of the decision.  By contrast, it was common ground between the parties that the views of Lord Steyn were obiter dicta and not necessary for the decision in the Royal Brompton Hospital case.  If that is correct, (as it may well be) the strict position appears to be that we remain bound by the decision in the Friends’ Provident case.
78.	In these circumstances, although both parties made detailed submissions on the question whether a claim for restitution is a claim for “compensation”, I do not think that it would be appropriate for me to express my own view on the point, at any rate unless it were necessary to do so in order to resolve the issues in this appeal.  In the light of the conclusions which I expressed earlier it is not necessary to express such an opinion.  I have already expressed my conclusion that if the 1978 Act applies the just result would be to order CAI to pay a contribution of 100 per cent, as was done in the Coys case, and for similar reasons.  No question of any possible conflict between the effects of subrogation, recoupment and contribution therefore arises.  On the other hand, if the Act does not apply, the result is the same, namely that SGS is entitled to recover in full from CAI by way of subrogation or recoupment.  In these circumstances, it is not necessary or appropriate for me further to lengthen this judgment by my own analysis of the meaning of “compensation” in section 6(1) of the 1978 Act.
Postscript
79.	Since writing the above, I have seen a copy of the very recent decision of this court in Cheltenham & Gloucester Plc v Appleyard [2004] EWCA 291, which contains a valuable discussion of the principles of subrogation.  It does not, however, seem to me to contain anything which should lead me to alter the views expressed above.    
CONCLUSION
80.	For the reasons I have given I would dismiss this appeal and uphold the conclusion of the judge that SGS is entitled to recover the whole of the amount which it paid to Niru in respect of principal and interest.  I would do so on the basis that SGS is entitled to restitution and that the appropriate remedy is the equitable remedy of subrogation, although I would also do so by the application of the principles of recoupment.  If the 1978 Act applies, I would hold that CAI should contribute 100 per cent of the same amount on the basis that it would be just and equitable having regard to CAI’s responsibility for Niru’s loss.  Finally, I would like to thank counsel for their assistance in this interesting case.
Lord Justice Sedley 
81.	I do not dissent from the conclusion reached by the President and Lord Justice Clarke that CAI should indemnify SGS in the full amount of the latter's liability to Niru. I am, however, uneasy at some of the discontinuities in the developing law of restitution and contribution which the argument before us has exposed. I am mindful that, as Lord Justice Clarke points out, the applicability of the 1978 Act does not matter once one has decided (a) that SGS can recover in full both by subrogation and by recoupment and (b) that if the 1978 Act applies, SGS is entitled to a full indemnity under it as well; but the merits of a not very different case could well be such as to require the court to decide whether it is bound by law to award all or nothing rather than allocate the loss as justice requires. 
82.	These Part 20 proceedings concern the just distribution of Niru’s loss as between SGS, who caused Bank Sepah to pay out on a negligent certification that the lead ingots had been loaded when they had not, and CAI, who unlawfully paid away the funds consequently transferred to them. In modern statutory contribution proceedings between two such parties as defendants, it would be unsurprising to find them ordered (as Moore-Bick J was initially disposed to order them) to share Niru’s loss on the ground that but for either defendant’s breach of its duty to Niru the loss would not have occurred. It is only because of the doctrinal difference between restitution and tort that this logic is apparently unavailable to us. I cannot help wondering whether this is the way the law should be going. It is even less satisfactory that the same logic may not be available in subrogation or recoupment, even though these doctrines are directed to the same end of ensuring so far as possible that losses are distributed justly.
83.	There is good authority about the position of a restitution claimant who has neglected his own interests, but none about a restitution claimant who himself has acted unlawfully, where in both cases the claimant has by his act contributed to the occurrence of the eventual loss. In the first class of case one sees readily that the enrichment of the defendant may be no less unjust because of the claimant’s own weakness or foolishness. His neglect of his own interests until 1945 defeated a claim made by him for damages in negligence; since then, if causative, it has diminished any such claim. But a claim in restitution is axiomatically not a claim for damages.
84.	The way in which Miss Andrews accordingly puts her claim in this terra incognita is that SGS, having been sued to judgment for the full amount (indeed having shrewdly paid it), should be regarded as in the same position as the innocent loser in whose shoes SGS now stands. Yet each party to these Part 20 proceedings is able legitimately to say that but for the other’s unlawful act the loss would not have occurred. That is not, either literally or by analogy, the Kelly v Solari situation. Nor is it the situation which has faced the court in any reported case that we have seen. If, as Lord Clyde said in his assenting speech in Banque Financière, at 237, the restitutionary remedy “may vary with the circumstances of the case, the object being to effect a fair and just balance between the rights and interests of the parties concerned”, why should it not be relevant that the right in which SGS sues, whether by subrogation or in recoupment, is a function of its own wrongdoing?
85.	Miss Andrews’ answer, that the entire burden comes to rest on the party “primarily” or “ultimately” liable, is not helpful. Her epithets beg all the questions posed by Lord Nicholls in Dubai Aluminium v Salaam [2003] 1 Ll.R.65, para.51. “Responsibility,” Lord Nicholls said, “includes both blameworthiness and causative potency”. Primary and ultimate liability, by contrast, are protean terms which could as readily implicate SGS as CAI.
86.	This case does not fall within the doctrine of Merryweather v Nixan (1799) 8 TR 186, summarised by Lord Denman in Betts v Gibbins (1834) 2 Ad. & E 57, 74, as being that “between wrongdoers there is neither indemnity nor contribution: the exception [being] where the act is not clearly illegal in itself”. The rule exemplifies the non-justiciability of acts of turpitude, and I agree with Moore-Bick J that it has no application here. If it did, however, it would still not necessarily shut out the application of the 1978 Act.
87.	Section 2(1) of the 1978 Act requires the court to apportion each person’s contribution “having regard to the extent of that person’s responsibility for the damage”. This court, I agree, remains bound by what it decided in Friends’ Provident notwithstanding the doubt later cast upon it by as respected an authority as Lord Steyn who, as both counsel accept, was speaking obiter. Moreover, the academic critique of Friends’ Provident is, at least in my respectful view, not obviously right. Since the word “damage” in s.1(1) has the meaning given to it by s.6(1), the fact (if it is a fact) that a restitutionary claim is not a claim for “damage suffered” is nothing to the point. The question is whether it is a claim for compensation in respect of damage for which the other party is liable. There is no obvious misnomer in describing a claim like the present Part 20 claim as concerned with compensating SGS in respect of damage, that is to say loss or harm, for which CAI has been held liable.
88.	This solution would also address the real difficulty to which Mr Bloch drew attention in relation to restitution: CAI has not been enriched at all. It has parted with the money, and to the extent that the Part 20 proceedings are successful it is now going to be impoverished. There is nothing wrong with that in terms of statutory contribution and elementary justice, but it does not sound like restitution of a sum by which CAI has been unjustly enriched. That could apply only to the conspicuously absent Mr Mahdavi.
89.	Our task has not been made any easier by the parties' unwillingness to debate an apportioned contribution except under pressure from the court. Counsel's arguments have essentially been for all or for nothing, and in the circumstances I do not dissent from the conclusion of the other two members of the court that the justice of this particular case requires CAI to reimburse SGS in full, whether by way of subrogation or recoupment or contribution. But for my part I would have preferred to be able to put the statutory remedy of contribution first rather than last among the reasons for so concluding.
Dame Elizabeth Butler-Sloss P
90.	I agree that the appeal should be dismissed for the reasons given by Lord Justice Clarke.
Order:  Appeal dismissed.  All consequential orders to be decided on paper.
(Order does not form part of the approved judgment)