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Court |
Court of Appeal |
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Issue |
Change of position defence |
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Outcome |
The defendant’s defence of change of position succeeded at first instance and was upheld on appeal. |
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Key takeaway |
A recipient of a payment from a third party may need to take steps to verify the purpose or validity of the payment, otherwise the recipient may be required to return or repay the funds. |
Who should bear the loss when a fraudster induces one innocent party to pay another, and the recipient then detrimentally changes its position in good faith reliance on the validity of the payment? Where there is no dishonesty, what may be left is a claim in unjust enrichment. If that claim is proven, the defendant must show they have a defence enabling them to avoid repayment of the sum they received, such as the provision of good consideration or a change of position. The Court of Appeal examined the latter defence in Rasmala Trade Finance Fund v Trafigura Pte Ltd [2026] EWCA Civ 1259, holding that Trafigura had acted in good faith in reliance on the validity of the payments made to it and it would be inequitable to require it to make any repayment to Rasmala.
What was the case about?
Trafigura is an international commodities trader. One of its customers was Farlin. Trafigura granted Farlin an open credit limit, which increased during their relationship to $11m, supported by insurance cover for 50% of the limit.
Farlin started to struggle to stay within its limits with Trafigura and was late making payments. It sought financing and it was introduced to Rasmala. Rasmala and Farlin entered into a one-year facility agreement in the amount of $20m pursuant to which Farlin was supposed to request a drawdown of the facility for a specific contract. If Rasmala approved the contract, it would be structured as a purchase of the commodity by Rasmala and a subsequent sale to Farlin for the purchase price plus an agreed profit rate. Rasmala appointed Farlin to enter into purchase contracts, once approved by Rasmala, on its behalf as an undisclosed agent.
At the time, when it received a payment from a third party on behalf of a customer, it was Trafigura’s practice to require that third party and the customer to enter into a Third Party Agreement (TPA) with Trafigura. By way of the TPA, all parties would confirm their agreement to Trafigura’s proposed use of the payments received. The TPAs purportedly entered into by Rasmala, Farlin and Trafigura confirmed that Trafigura could apply payments received to outstanding debts. That was inconsistent with Rasmala’s intended use of the facility, under which each drawdown was to finance a specific approved transaction. To get around this, and unbeknownst to Rasmala and Trafigura, Farlin forged Rasmala’s signatures on the relevant TPAs.
Eventually, Trafigura terminated its relationship with Farlin. At that time, Trafigura was owed a total of some $15m.
Rasmala sought restitution from Trafigura in unjust enrichment, alternatively that Trafigura held some $21,596,630 on constructive trust for Rasmala. Following a trial, the Judge dismissed as hopeless a contention that Trafigura had acted dishonestly. The Judge accepted that Trafigura had been unjustly enriched, but he also accepted Trafigura’s defence that, in reliance on the payments it had received, Trafigura continued trading with Farlin rather than stopping and pursuing its existing debts, thereby changing its position and losing a potentially valuable recovery opportunity. In those circumstances, the Judge concluded it would be inequitable to require Trafigura to make any repayment to Rasmala.
What is the change of position defence?
The House of Lords recognised the defence of change of position in Lipkin Gorman v Karpnale Ltd [1988] UKHL 12, stating that the defence is available to a person whose position has so changed that it would be inequitable in all the circumstances to require him to make restitution, or alternatively to make restitution in full.
Chitty (at 33-202) notes that the operation of the defence is founded on two fundamental principles:
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- The mere fact of having spent money or delivered property does not suffice to establish the defence – there must be a causative link between the receipt of the benefit by the defendant and their change of position.
- The defendant’s position must have changed in circumstances which make it inequitable for them to make restitution to the claimant.
Whilst Rasmala appealed the first instance judgment on seven grounds, permission was only granted in respect of five (and, at the hearing, Rasmala applied to rely on an additional ground). This piece considers only two of those five grounds, namely whether Trafigura had acted in good faith (which goes to the question of whether it would be inequitable to require restitution) and whether there was a sufficient causal connection between the payments and Trafigura’s change of position.
What’s meant by “good faith”?
Nugee LJ, giving a judgment with which the remaining Lord Justices agreed, cited Lipkin Gorman for the requirement that a defendant relying on a change of position defence must have acted in good faith.
Following a discussion of the relevant case law on what was meant by “good faith” in this context, Nugee LJ confirmed that:
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- Dishonesty is not the sole criterion. Conduct falling short of dishonesty may defeat the defence, including sharp practice. Nugee LJ left open whether a failure to act in a commercially acceptable way, without more, is sufficient.
- Negligence is not enough to deprive a defendant of the defence.
- The focus is on what the defendant knew, appreciated or understood. If the defendant knew that the payment was made by mistake, he had to return it. If he believed it may have been made by mistake, but could not be sure, he might need to make enquiries.
- Whilst it was relevant to consider whether it would be inequitable to allow the defendant to rely on the change of position defence, as opposed to a good faith/bad faith dichotomy, the focus should remain on what the defendant actually knew or understood rather than on what a reasonable person may have discovered.
On the facts, Nugee LJ considered the Judge’s findings a “complete answer to the suggestion that Trafigura did not act in good faith”: Trafigura did not realise Rasmala had paid the money on a false basis, it did not appreciate that the payments may have been made by mistake and – further yet – did not have knowledge of facts that would have given a reasonable person reason to believe this.
Does there need to be a connection between the payment and the change of position?
There was no dispute between the parties that the defence of change of position required a causal connection between the relevant payment and the facts relied on as constituting the change of position. However, the parties argued over whether a “but for” test should be applied. Rasmala submitted that what caused Trafigura to continue its relationship with Farlin was not the payments, but the (invalid) TPAs. Trafigura countered that all that needed to be shown was that, but for the payments, the change of position would not have happened.
Having considered the authorities, Nugee LJ did not think either submission was “quite right”. Instead, he held that, in a case of this kind involving a voluntary change of position, it was sufficient that the payee acted “on the faith of” the payment, that is the bona fide belief that the payment is valid and the payee could deal with the money as its own. Here, Nugee LJ found that the fact Trafigura acted as it did was because it understood that it could do what it liked with the payments made by Rasmala. The process of seeking and obtaining the TPAs reinforced and justified this bona fide belief.
Why does this matter?
This decision does not impose a general duty on recipients of third-party payments to contact the payer directly to verify the purpose or validity of the payment. Whether good faith requires further inquiry depends on what the recipient actually knows or suspects and on the commercial context of the transaction. At the relevant time, Trafigura’s TPAs went beyond ordinary market practice and, on their face, appeared to confirm its entitlement to use the payments to offset existing debts. Nevertheless, the dispute illustrates the practical value of independent verification where substantial third-party payments are to be applied against another party’s existing indebtedness. It also illustrates the risks for a financier of the decision to remain an undisclosed as principal and to channel communications with the supplier through its customer.
FAQs
What remedies are available in an unjust enrichment claim?
The primary remedy in an unjust enrichment claim is restitution, which aims to restore the claimant to the position they would have been in had the enrichment not occurred. In practice, this often involves the repayment of money received by the defendant. However, recovery may be reduced or defeated where the defendant can establish a recognised defence, such as change of position.
What factors can prevent a defendant from relying on the change of position defence?
A defendant may be prevented from relying on the change of position defence if they did not act in good faith. For example, the defence is unlikely to succeed where the recipient knew a payment had been made by mistake, acted dishonestly, or engaged in improper conduct. Whether the defence is available will depend on the facts of each case and whether it would be equitable to require repayment.
What is the difference between unjust enrichment and fraud?
Fraud involves deliberate deception intended to secure a gain or cause a loss, whereas unjust enrichment focuses on whether one party has received a benefit at another’s expense in circumstances that the law considers unjust. An unjust enrichment claim does not require proof of dishonesty. As demonstrated in Rasmala Trade Finance Fund v Trafigura Pte Ltd, a party may have an unjust enrichment claim even where no fraud or dishonest conduct is established against the recipient of the funds.
Disclaimer: This article is provided for general information only and is accurate as of 11 October 2026. It may not be updated to reflect subsequent legal or other developments. It does not constitute legal advice and should not be relied on as such. Specific legal advice should be obtained in relation to particular circumstances.
