Date: 19980424 Docket: C953171 Registry: Vancouver IN THE SUPREME COURT OF BRITISH COLUMBIA BETWEEN: THE EMPIRE LIFE INSURANCE COMPANY PLAINTIFF AND: KEVIN MARC NEUFELD, also known as KEVIN MARK NEUFELD, Executor of the Will of Ernest Henry Neufeld (Deceased), and the said KEVIN MARC NEUFELD, DARIN KIRK NEUFELD, THE CANADA TRUST COMPANY, R.B.C. DOMINION SECURITIES INC., and THE ROYAL BANK OF CANADA DEFENDANTS REASONS FOR JUDGMENT OF THE HONOURABLE MR. JUSTICE LOWRY Counsel for the Plaintiff: J. Derek James Counsel for the Defendants, Kevin Marc Neufeld a.k.a. Kevin Mark Neufeld, Executor of the Will of Ernest Henry Neufeld (Deceased), and the said Kevin Marc Neufeld, Darin Kirk Neufeld: E. Reid Dobell Place and Date of Hearing: Vancouver, B.C. April 16 & 17, 1998[1] The Empire Life Insurance Company made a mistake. It paid out the full value of a policy held by Ernest Neufeld who lives in Saskatchewan to the estate of a deceased person having the same name who had lived in British Columbia. The company seeks restitution of the amount paid, $313,177.88. The beneficiaries of the deceased's estate, his sons Kevin and Darin Neufeld, the first of whom is the executor, resist. They maintain they are entitled to retain the whole of their windfall. They raise various grounds of defence to what is a claim for unjust enrichment, and a summary disposition of Empire's action against them is now mutually sought. The Mistake and the Defences Raised [2] The facts which appear to be material can be simply stated. [3] Following his death in July 1993, two policies of life insurance issued by Dominion Life of Canada were discovered among the deceased's papers. The solicitor for his estate made inquiry to determine if they were still in effect and, if so, what would be required to obtain any benefits that might be payable. The policies had been part of business that Empire had at some time acquired from Dominion. Both policies had long since lapsed. Apparently because an Ernest Neufeld (in Saskatchewan) was on record as the holder of two Empire policies, one of which, No. 701366I, was valid, the company informed the solicitor that a benefit was payable upon certain requirements, the "settlement requirements", being met. It provided what is described as a Financial Changes Request Form which purported to discharge Empire from "any responsibility and any obligation" under the policy. The form was ultimately signed by Kevin Neufeld as executor when probate of the deceased's will was obtained and was sent to the company together with copies of a death certificate, copies of the will and letters probate, and the two Dominion policies which are said to have been destroyed on receipt. Empire then promptly made payment in November 1994. [4] About six weeks later, Empire discovered its mistake. It informed the Neufelds and requested the return of the funds. By that time, all but $60,000 had been paid out of the estate. About $30,000 had been spent: Kevin Neufeld had used $24,000 to retire a loan he had taken to purchase a truck for his business, and Darin Neufeld had purchased a computer and some automotive parts. Some $46,000 of the money held in the estate was used to retire a mortgage on the deceased's house but the transaction was reversed after the Neufelds were informed of the mistake. Apart from the $30,000 spent by the beneficiaries, the whole of the amount paid by Empire was then invested in this jurisdiction. However, contrary to an assurance given to Empire by the Neufelds' solicitor that they would not deal with the funds "in any way whatsoever" until the matter was sorted out, much of the money was transferred to a Washington State bank. It was returned to this jurisdiction only in the face of a compelling court application. By agreement between the parties, the money was placed in trust pending resolution of this dispute. [5] It is accepted that the general rule has long been that where money is paid voluntarily under a mistake on the payer's part as to a material fact, it may be recovered in an action for money had and received: Kelly v. Solari (1884), 9 M. & W. 54 at 58. But the Neufelds say that, in these factual circumstances, the rule does not apply. [6] They first say that, given the signed Request for Financial Changes Form which contained a release in favour of Empire, and the related correspondence which referred to the requirements for settlement of the claim, the payment was the subject of a settlement agreement between Empire and the executor of the estate to which the beneficiaries were privy. They say that, in the absence of fraud, the agreement cannot be set aside. They say further that Empire assumed the risk of the mistake it made and that restitution is consequently not available. They go on to contend that the executor is but a conduit for the distribution of the assets of the deceased's estate such that he cannot be called upon to repay the funds and then say that because of an absence of privity between Empire and the beneficiaries the claim for restitution is defeated. The Neufelds also maintain that Empire suffered no loss because it may be assumed that it will have passed the loss on through increased premiums on new insurance business. Finally, the Neufelds argue that they are entitled to raise a defence of estoppel to the whole of Empire's claim. As I understand it, the contention is that, because Kevin Neufeld signed the Financial Changes Request Form, accepted the insurer's payment, and distributed it to the beneficiaries being himself and his brother, he can be said to have acted on a representation made by Empire such that the company is estopped from denying that the funds belong to the Neufelds. The Settlement Agreement [7] In my view there was no settlement agreement. In correspondence with the solicitor for the estate, Empire stated that it required the documentation it ultimately received to "settle" the claim. The Neufelds attempt to stretch the terms "settle" and "settlement" to argue that a "settlement agreement" arose between themselves and Empire. They cite authority about the settlement of disputes such as Robertson and Robertson v. Walwyn Stodgell Cochrane Murray Limited et al., [1988] 4 W.W.R. 283 (B.C.C.A.) for the proposition that barring fraud or other extreme circumstances, courts must enforce "settlement agreements," even if made in mistake or ignorance. But the term "settlement" as used by Empire in its correspondence had nothing to do with settlement of a disputed claim. It is a term commonly associated with the payment of a life insurance benefit (see Black's Law Dictionary, 6th ed. (St.Paul: West, 1990) at 1372-73) and in the present circumstances meant nothing more. Further, the form signed by Kevin Neufeld as executor contained no release he was able to give. His signing the form certainly did not discharge Empire from its obligations under policy No. 701366I, and the benefit was in no way compromised; it was paid in full. Empire paid the money not in exchange for Kevin Neufeld's signature and the obligatory documents, but because of its supposed preexisting contractual obligation to the deceased's estate. The signing of the form, and for that matter the purported surrender of the policy, was, and was intended to be, no more than the fulfillment of the procedural requirements expressed in the standard wording of a life insurance policy to obtain the benefits payable. Assumption of Risk [8] As discussed in the fourth edition of Lord Goff and Gareth Jones's text, The Law of Restitution (London: Sweet & Maxwell, 1993) at 50-51, where it can be established that, in paying an honest claim, an insurer has assumed the risk of any mistake made such that all further inquiry is waived, the insurer cannot recover back the funds advanced. The question is whether the insurer paid out without reference to the truth or falsehood of the mistaken fact. Thus if the insurer paid out wanting to wash its hands of the whole issue and thereby settle the claim at all costs, payment is said to be voluntary and may be retained. However, as the authors point out, this test may be difficult to satisfy. [9] Here it does not appear to me that there is any evidentiary basis upon which it could be concluded that Empire paid out as it did without reference to its true liability. Indeed, the contrary is unquestionably the case. It paid in full only because of the mistake. There was no waiver of further inquiry nor any assumption that the Neufelds would have the money in any event, even if a mistake were to be later discovered. Privity [10] Authorities in the restitution jurisprudence differ on the requirement of privity between the payer and recipient before a mistaken payment will be returned. In Barclays Bank Ltd. v. W.J. Simms Son & Cooke (Southern) Ltd., [1979] 3 All E.R. 522 (Q.B.), Goff J. (as he then was) found a general right of recovery in the case of a mistaken payment, regardless of whether there was privity in the strict contractual sense between the payer and the recipient. In contrast, on the authority cited, Canadian courts appear to have insisted on a form of privity in which the mistake must arise between the person paying and the person receiving the money: Royal Bank v. The King, [1931] 2 D.L.R. 685 at 689 (Man. Q.B.), Bank of Nova Scotia v. Passero and Passero (1990), 74 O.R. (2d) 78 at 87 (Dist.Ct.) and Howe v. Laurentian Life of Canada (1995), 30 C.C.L.I. (2d) 25 at 27-28 (N.B.Q.B.). [11] In my view, it is not necessary here to choose between these approaches, as the more restrictive Royal Bank test still allows recovery in the present circumstances. In that case, it was said at 689 that "the receiver must in some way be a party to the mistake, either as inducing it, or as responsible for it, or connected with it." In my view, both Kevin and Darin Neufeld were sufficiently connected as being the direct beneficiaries of the mistake to overcome any question of privity. As executor, Kevin Neufeld dealt with Empire through his solicitor and received the funds as trustee for himself and his brother. It seems to me utterly incongruous of the Neufelds to contend as they do that a lack of privity defeats Empire's claim because, on the one hand, the executor is merely a conduit who cannot be called upon to repay (i.e., apart from what remains in the estate) and, on the other, the beneficiaries are not sufficiently connected with the mistake. Passing On the Loss [12] In contending that Empire has suffered no loss, counsel for the Neufelds cites Air Canada v. British Columbia (1989), 59 D.L.R. (4th) 161 at 193-94. There La Forest J. said in obiter that an airline which, like others, had passed an unconstitutional tax on to its customers could be said to have suffered no loss. The airlines would thus be unable to make out a claim of restitution against the taxing authority, even though the authority had been unjustly enriched, because the law of restitution is not intended to provide windfalls to plaintiffs that have suffered no loss. Counsel suggests that this reasoning is not to be confined to the mistaken discharge of tax liability but extended to any similar financial burden that might be viewed as a cost of doing business. Such costs, he says, are invariably passed on to consumers as it must be assumed has happened here. [13] The short answer to what appears to me to be a rather hollow contention is that the assumption is wrong; on the evidence, the loss has not been passed on at all but will be borne by Empire if the recovery it seeks cannot be made. I do not consider what was said by La Forest J. in Air Canada to have any application to an insurance company's recovery of a payment made by mistake. Estoppel [14] In raising the defence of estoppel, the Neufelds maintain that there are two related defences to a case of restitution where money is paid by mistake and it is open to a defendant to choose which is to be relied upon. The first is estoppel; the second is what is known as a material change of position. Of the two, the defence of change of position is the more recently developed jurisprudentially, first recognized by the Supreme Court of Canada in Rural Municipality of Storthoaks v. Mobil Oil Canada Ltd. (1975), 55 D.L.R. (3d) 1. It was applied by this Court in Sullivan v. Lee (1994), 95 B.C.L.R. (2d) 195. [15] Perhaps the most significant difference between the two is in the extent of the answer to a claim for restitution they afford. Where the defendant recipient successfully establishes estoppel, he or she may retain the whole of the mistaken payment: Avon County Council v. Howlett, [1983] 1 W.L.R. 605 (C.A.). In contrast, a defendant recipient successfully pleading the defence of change of position may retain the mistaken payment only to the extent that finances or lifestyle have been altered detrimentally in reliance on the mistaken payment. The defendant must return all moneys received except those which the defendant has actually spent beyond recall, and which the defendant would not have spent but for the reliance on the mistaken windfall. [16] A tension between the two defences exists in the jurisprudence and the question remains of whether the defendants may choose the "winner takes all" defence of estoppel over the more limited protection of the change of position defence: see generally Goff and Jones at 746-747. The Newfoundland Court of Appeal recently explored this dilemma in RBC Dominion Securities Inc. v. Dawson (1994), 111 D.L.R. (4th) 230 at 237. There it was held that a defendant does not have a choice. The defence of change of position was held to be preferred as being decidedly more equitable and tailored to the principles of unjust enrichment. Estoppel, as a defence to an action for money paid under a mistake of fact, was rejected. I respectfully adopt what was said in RBC. The defence of estoppel is not available to the Neufelds. [17] It follows that they can succeed only if they have made out a change of position defence. They bear the onus of establishing through evidence and submissions that they have so altered their position that restitution would be inequitable: Storthoaks at 14, RBC at 241, and Goff and Jones at 745. But they have neither pleaded nor argued the defence of change of position. Indeed, no evidence is adduced to establish that the $30,000 the Neufelds actually spent before they were told a mistake had been made would not have been spent in any event or, for that matter, that it was in whole or in part spent beyond recall. The absence of such evidence is fatal to any possible consideration of the change of position defence. The money was used to pay for assets that presumably had lost little of their value by the time the mistake was discovered. It appears that the Neufelds may at that time have been only minimally inconvenienced financially by using the money as if it was theirs to keep and it may well be that is why they have argued for an estoppel and made no effort to establish a defence of a change in their position. Conclusion [18] I conclude that the Neufelds' resistance to Empire recovering the money it paid their father's estate by mistake to be in all respects ill-founded. The money must be returned. Disposition [19] Empire is entitled to judgment against Kevin Neufeld as the executor of the estate of Ernest Neufeld and as a beneficiary of that estate as well as against Darin Neufeld as a beneficiary of the estate for the amounts of money each of the estate and the two sons of the deceased received out of the sum of $313,177.88 paid to the estate by Empire together with prejudgment interest at registrar's rates from December 22, 1994. [20] Counsel are asked to settle an appropriate form of order and they may speak to the terms of such if necessary. "Lowry, J."