(ii) Beliefs and Assumptions
In Pitt v Holt[1] Lord Walker sought to define mistake by distinguishing between three different states of mind: an incorrect conscious belief, an incorrect tacit assumption, and mere causative ignorance but for which the claimant would not have acted as he did. Lord Walker considered that only the first two can be characterized as mistake; mere causative ignorance is not a mistake.[2] Although he accepted that it might be difficult to distinguish between beliefs, assumptions and ignorance, he emphasized that the court should not shrink from drawing an ‘inference of conscious belief or tacit assumption when there is evidence to support such an inference’.13
Consequently, if it can be shown that the claimant had an incorrect belief or acted on an incorrect assumption as to fact or law, the claimant can be considered to be mistaken. If, however, the claimant had no idea about the possible existence of a fact or law, this suggests ignorance rather than mistake, unless a tacit assumption about the fact or law can be inferred.
For example, if a donor makes a gift to a charity whilst unaware of how much it spends on administration, this would not be a mistake unless it can be established that the donor made an incorrect assumption about the charity’s administration at the time of payment.
This notion of an incorrect tacit assumption proved to be significant on the facts of Pitt v Holt itself. The case concerned a claim to set aside a voluntary disposition made to a trust on the ground that the disposition had been made by mistake. Following a road accident in which he was seriously injured, Mr Pitt received significant compensation. His wife was appointed his receiver and she sought professional advice concerning the investment of this money. As a result of this advice she placed the money in a discretionary trust for the benefit of her husband, herself, and their children. Mr Pitt later died, and his estate was found to be liable to pay inheritance tax on the sum held on trust. This liability could have been easily avoided had the trust contained a provision that at least half of the settled property applied during Mr Pitt’s lifetime would be used for his benefit, but both the professional advisers and the Court of Protection, which had approved the trust, apparently overlooked the relevant tax liability. Lord Walker considered that Mrs Pitt had made a mistake relating to the inheritance tax liability: she either had an incorrect conscious belief as regards the tax consequences of the dispositions, or a tacit assumption that it would not result in adverse tax consequences. In fact, the trial judge had held[3] that Mrs Pitt had not made any mistake because she had not considered the question of inheritance tax liability at all, relying completely on her advisers. The Supreme Court disagreed and found that she was mistaken.[4] But the trial judge’s finding of fact suggests that, because Mrs Pitt had no belief as to the tax liability, she must have made an incorrect tacit assumption that there would be no such liability.
This recognition that an incorrect tacit assumption constitutes a mistake potentially expands the notion of mistake significantly. It means that if, for example, the claimant has forgotten certain facts, such that he or she has already transferred a benefit to the defendant,[5] [6] the claimant can be considered to have acted on an assumption which was incorrect. But such circumstances of forgetfulness about particular facts could be characterized as involving mere causative ignorance. The line between assumption and ignorance is consequently unclear. It would certainly have been more straightforward for the Supreme Court to have confined mistake to an incorrect conscious belief, which is how it was previously defined. In Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd17 Lord Phillips MR described a mistake as an ‘erroneous belief’. Sheehan usefully defined as mistake as a ‘belief in something that can, at the time it is acted upon, be proved not to be the case’.[7] It would follow that forgetfulness or ignorance about particular facts would not constitute a mistake, because they do not involve belief. After the decision ofthe Supreme Court in Pitt v Holt that does not represent the law. Whether it should is a matter of policy and pragmatism.
The inclusion of incorrect tacit assumptions within mistake should be considered to be correct for two reasons. First, where the claimant has transferred a benefit to the defendant in circumstances where, for example, the claimant had forgotten a relevant fact and so had acted on a particular assumption about the state of the world, it remains appropriate to conclude that the claimant’s intention to benefit the defendant was vitiated, even though the claimant had not consciously considered the relevance of the fact. Secondly, and even more significantly, even if mistake was confined to incorrect conscious beliefs, it will still be a matter of some difficulty for the claimant to prove what he or she actually believed at the time of transferring the benefit. Our decisions to act, whilst conscious, are typically not so carefully reasoned that we consider all relevant facts, but rather base our decisions on tacit assumptions. By recognizing that incorrect tacit assumptions form part of the doctrine of mistake, the Supreme Court was realistically defining what is a mistake and emphasized that the determination of whether the claimant was mistaken will require careful consideration of all the evidence to determine the state of the claimant’s mind.
- [1] Enrichment (8th edn, London: Sweet and Maxwell, 2011), 258.
- [2] 13 Pitt v Holt [2013] UKSC 26, [2013] 2 AC 108, [108].
- [3] Pitt v Holt [2010] EWHC 45 (Ch), [2010] 1 WLR 1199, [50] (Robert Engelhart QC).
- [4] Since the claim concerned rescission of a deed in Equity, there were additional factors to consider beforerestitution could be awarded. See p 200, below.
- [5] As in Lady Hood of Avalon v Mackinnon [1909] 1 Ch 476. See p 200, below.
- [6] [2002] EWCA Civ 1407, [2003] QB 679, [28].
- [7] D Sheehan, ‘What is a Mistake?’ (2000) 20 LS 538. See also FA Farnsworth, Alleviating Mistakes (Oxford:Clarendon Press, 2004), 20, who concludes that a mistake should be defined as ‘flawed perception’.
