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MISTAKE AS A GROUND OF RESTITUTION

(A) SPONTANEOUS MISTAKES

Where the claimant wishes to recover a benefit which has been transferred to the defendant as a result of a spontaneous mistake, the appropriate test for determining which mistakes should ground a restitutionary claim has been a matter of particular controversy. Three different principal tests have been recognized at varying times as grounding such claims, namely liability mistakes, fundamental mistakes, and causative mistakes.

(i) Liability Mistakes

In the first cases to recognize that the claimant’s spontaneous mistake could ground a restitutionary claim, relief was confined to where the claimant mistakenly believed that he or she was liable to pay the defendant. In such circumstances it is clear that the claimant’s intention to benefit the defendant must have been vitiated by the mistake. This is because, had the claimant not mistakenly believed that he or she was liable to pay the defendant, the money would not have been paid, since there would usually be no other explanation as to why the money was paid.

It is possible to identify four different types of liability mistake which have been recognized as sufficient to justify restitution.

(1) Existing Legal Liabilities Owed to the Defendant

If the claimant can show that he or she transferred a benefit to the defendant because of a mistaken belief that he or she was subject to an existing legal liability to do so, this will ground a restitutionary claim. This was recognized in Aiken v Short47 where Bramwell B said:[1] [2] [3]

In order to entitle a person to recover back money paid under a mistake of fact, the mistake must be as to a fact which, if true, would make the person paying liable to pay the money; not where, if true, it would merely make it desirable that he should pay the money.

The application of this principle is illustrated by Kelly v Solari,49 where the claimant insurance company had paid money to the executrix of the assured believing that it was liable to do so under a life insurance policy. In fact, there was no liability to pay this money because the policy had lapsed as a result of the assured failing to pay the premiums on the policy. Such a mistake as to the existence of the liability meant that in principle the claimant could recover the money,[4] since, as Parke B recognized, where money was paid on the assumption of certain mistaken facts which, if true, would mean that the recipient was entitled to the money, it followed that restitution should be awarded where those facts were not true.[5] [6] [7] It was also held to be irrelevant that the means of discovering that the policy had lapsed was available to the claimant. Consequently, the carelessness of the claimant, in failing to check whether the policy had lapsed, did not prevent it from obtaining restitution.

Usually, as in Kelly v Solari, the mistaken belief in liability relates to a contractual liability to pay the defendant, but this is not always the case. So, in Baylis v Bishop of London,52 although the claimant’s mistaken belief concerned a non-contractual liability to pay ecclesiastical tithes to the Bishop of London, restitution of the money was still ordered.

Even where the claimant has made a mistake as to the existence of a legal liability, restitution only lies if the claimant can show that, if the mistake had not been made, he or she would not have transferred the benefit to the defendant. In other words, the mistaken belief as to a liability to pay must be shown to have been the cause of the transfer being made, in the sense that, but for the mistake, the benefit would not have been transferred to the defendant. For example, in Home and Colonial Insurance Co Ltd v London Guarantee and Accident Co Ltd53 the payment made by the claimant had been influenced by a mistake of law as well as one of fact. It followed that restitution was denied because the claimant could not show that his decision to make the payment had only been influenced by the mistake of fact. Of course, with the abolition of the mistake of law bar, where the claimant’s mistake is both a mistake of law and one of fact, restitutionary relief would now be awarded because both types of mistake can operate as grounds of restitution.

(2) Existing Liabilities Owed to Third Parties

Whether restitution can be awarded where the claimant transfers a benefit to the defendant in the mistaken belief that he or she is under an existing legal liability to a third party to do so has been a matter of some controversy. Restitution in such circumstances has sometimes expressly been rejected on the ground that the claimant mistakenly believed that he or she was liable to a third party rather than the defendant,[8] whereas in other cases restitution has been awarded even though the claimant had such a mistaken belief.[9] The better view is that the claimant’s belief that the liability was owed to a third party rather than to the defendant should not bar the restitutionary claim, since the transfer is still caused by the claimant’s mistaken belief that he or she was liable to make the transfer, albeit that this liability was not owed to the recipient of the benefit.[10]

(3) Future Liabilities

Restitution has also been granted where the claimant’s mistake related to a belief in a future liability to transfer a benefit to the defendant. This was the result in Kerrison v Glyn,

Mills, Currie and Co,[11] where the claimant agreed with a bank that he would reimburse it in respect of any payments which were made by it on his behalf. In anticipation of such a liability arising in the future, the claimant transferred money to the defendant to be paid to the bank when the liability arose. The claimant was not, however, aware that at the time of his payment to the defendant the bank was insolvent. Consequently, the claimant sought to recover the money which he had paid to the defendant on the ground that he had made a mistake of fact, namely that no liability to reimburse the bank would have arisen subsequently. Although there was no existing liability to pay the money to the bank, it was held that the claimant could recover the amount paid to the defendant because of a mistaken belief that the liability would arise in the future.

This case does cause some serious difficulties though, since a mistaken belief that a liability to pay money would arise in the future is not a mistake at all, but is a mispredic- tion.[12] It therefore appears that the claimant in Kerrison had acted voluntarily in paying the defendant, so the claimant took the risk of the bank’s insolvency. Consequently, the ratio of the case that restitutionary relief should be available if the claimant’s ‘mistake’ relates to a liability arising in the future should be rejected. It does not follow, however, that the result of the case is necessarily wrong. The success of the restitutionary claim could be justified on two alternative grounds. First, the claimant can be considered to have made a mistake as to an existing fact, namely that the bank was solvent, and this mistake caused the claimant to pay the defendant. In other words, the claimant’s mistake was not a liability mistake but was simply a causative mistake, in the sense that, but for the claimant’s mistake as to the solvency of the bank, the claimant would not have paid the

59

money.

Alternatively, the success of the claim might be justified on the ground that the basis for the claimant paying the defendant, namely that the defendant would pay the bank, could never be satisfied because the bank was insolvent. In other words, the claimant could have relied on an alternative ground of restitution, namely total failure of basis.6

(4) Moral Duties

It has sometimes been suggested that, if the claimant transferred a benefit to the defendant in the mistaken belief that there was a moral duty to do so, such a mistake will enable the claimant to recover the benefit from the defendant. So, for example, in Larner v London County Council61 the Council had decided to pay its employees who had entered the armed services during the Second World War the difference between their war service pay and their civil pay. The Council made such a payment to Larner, but overpaid him because he had failed to disclose changes in his war service pay. It was held by the Court of Appeal that the Council could recover the overpayment, even though it had never believed that it was legally liable to make the payment in the first place. Denning LJ emphasized that it was sufficient, on the facts as the Council believed them to be, that there was a moral duty to pay Larner.

It remains unclear how the court in Larner was able to conclude that there was a moral duty to pay the defendant. There are three possible explanations of the case. The first is that the duty to pay arose from national policy at the time which sought to encourage men to engage in war service by removing some of the financial risks of doing so. But this is a vague basis for identifying a moral duty to pay. An alternative explanation of the case is that the duty arose from the fact that the Council had already promised Larner that it would pay him the money.[13] [14] So a moral duty to pay would appear to be triggered by an antecedent promise to pay, regardless of the absence of any contractual liability. But if an antecedent promise creates a moral liability to pay it follows that it would sometimes be possible to recover gifts by reason of mistake, so long as the claimant has promised to make the gift in the first place. If this were possible then it would undermine any notion of restitution being confined to liability mistakes. Consequently, Larner is better treated as a case where the mistake did not depend on any belief on the part of the claimant that it was liable to pay the defendant. The acceptance that the Council could recover the overpayment is much easier to justify by reference to a test that the Council’s mistake had caused the Council to make the payment to Larner.

(5) Is Restitution Confined to Liability Mistakes?

Even though it is clear that, where the claimant had made a mistake as to an existing liability to pay either the defendant or a third party, this is sufficient to establish a ground of restitution, it does not follow that restitution on the ground of mistake is confined to such circumstances. It is apparent from those cases which have recognized that mistakes as to future liability or moral liabilities can ground restitutionary claims, that there must be some other test of mistake, simply because the mistakes in those cases cannot properly be characterized as liability mistakes.

  • [1] (18 56) 1 H and N 210, 156 ER 1180. Affirmed in Re the Bodega Company Ltd [1904] 1 Ch 276.
  • [2] Aiken v Short (1856) 1 H and N 210, 215; 156 ER 1180, 1182. The claim failed both because there was nomistaken belief as to a liability to pay and because the defendant had provided good consideration for thepayment. See p 191, below.
  • [3] (1841) 9 M and W 54, 152 ER 24. See also Home and Colonial Insurance Co Ltd v London Guarantee andAccident Co Ltd (1928) 45 TLR 134, 135 (Wright J).
  • [4] A retrial was ordered to determine whether the claimant really had made a mistake.
  • [5] Kelly v Solari (1841) 9 M and W 54, 58; 152 ER 24,26. But Parke B did not suggest that a mistaken beliefas to liability to pay the money was the only type of mistake which would ground restitution. See Barclays BankLtd v WJ Simms, Son and Cooke (Southern) Ltd [1980] 1 QB 677, 687 (Robert Goff J).
  • [6] [1913] 1 Ch 127. 53 (1928) 45 TLR 134.
  • [7] 54 Deutsche Bank (London Agency) v Beriro and Co (1895) 73 LTR 669. See also Barclay and Co Ltd v
  • [8] Malcolm and Co (1925) 133 LT 512 and Weld-Blundell v Synott [1940] 2 KB 107.
  • [9] See, for example, Colonial Bank v Exchange Bank of Yarmouth, Nova Scotia (1885) 11 App Cas 84;Kleinwort, Sons and Co v Dunlop Rubber Co (1907) 97 LT 263; R E Jones Ltd v Waring and Gillow Ltd [1926]AC 670; Barclays Bank Ltd v WJ Simms, Son and Cooke (Southern) Ltd [1980] 1 QB 677.
  • [10] This was the view of Robert Goff J in Barclays Bank v Simms, Son and Cooke (Southern) Ltd [1980]1 QB 677.
  • [11] (1911) 81 LJKB 465 . 2 See p 162, above. 59 See p 170, below.
  • [12] 60 See Chapter 13. 61 [1949] 2 KB 683.
  • [13] CA Needham, ‘Mistaken Payments: A New Lookat an Old Theme’ (1979) 12 UnivofBrit Col LR 159,168.
  • [14] [1938] 1 KB 49.
 
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