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(C) SHOULD MISTAKE BE RECOGNIZED AS A GROUND OF RESTITUTION?

Some commentators have argued that there is no need to recognize mistake as a ground of restitution, since the ground of failure of basis is applicable in all cases of mistake.191 The ground of failure of basis will be established where the claimant transfers a benefit to the defendant which is conditional on there being subsequent performance, usually by the defendant; this is the relevant basis for the transfer. If that basis fails totally, the defendant’s enrichment can be considered to be unjust.1 2 So, for example, if the claimant sells a car to the defendant in the expectation that ?3,000 will be paid for it, and the claimant does not receive any money at all, the basis for the transfer of the car will have failed totally. Those commentators who argue that the mistake cases are better interpreted as cases where there was a total failure of basis argue that, where the claimant transfers a benefit to the defendant mistakenly believing that certain facts exist, if those facts do not exist the expected consequence of the transfer will not be achieved and so the basis for the transfer will often have failed totally. So, for example, where the claimant pays a sum of money to the defendant in the mistaken belief that it will discharge an existing liability, if there is no such liability, the basis for the payment will have failed totally, since it is not possible to discharge a liability which does not exist.

Whilst the award of restitutionary remedies in a number of cases can be justified by reference to both total failure of basis and mistake,193 the two grounds cannot be equated for a number of reasons.

First, the state of the case law does not support the argument that the ground of mistake should not be recognized. Mistake is clearly acknowledged as a ground of restitution in its own right, independently of the ground of total failure of basis.1 4 This has been recognized explicitly by the House of Lords in Kleinwort Benson Ltd v Lincoln CC19 and Deutsche Morgan Grenfell v IRC196 where the success of the claim depended on the ground of mistake, for otherwise the claim would have been time barred. In the former case the claimant could not have relied on the ground of total failure of basis, because it had received some of the expected performance from the defendant,197 and in both cases such a claim was time barred.

Secondly, the claimant cannot rely on the ground of total failure of basis where any part of the basis on which the claimant’s transfer of the enrichment is conditional has been provided.198 In such circumstances the claimant’s only chance of bringing a restitutionary claim within the principle of unjust enrichment will be on the ground of mistake. Even though this ground of restitution is also limited if some counter-performance has been provided by the defendant,199 this will only bar restitution to the extent that this performance has occurred, whereas the ground of total failure of basis will be completely barred if any part of the condition for the transfer has occurred.200 and Restitution’ in P Finn (ed), Essays on Restitution (Sydney: The Law Book Co, 1990), ch 4; S Hedley, Restitution: Its Division and Ordering (London: Sweet and Maxwell, 2001), ch 1.

  • 192 See Chapter 13.
  • 193 See, for example, Re the Bodega Company Ltd [1904] 1 Ch 276 and Rover International Ltd v Cannon Film Sales Ltd (No 3) [1989] 1 WLR 912.
  • 194 See Lord Wright in Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32, 61.
  • 195 [1999] 2 AC 349.
  • 196 [2006] UKHL49, [2007] 1 AC 558. See also Sempra Metals Ltd v IRC [2007] UKHL34, [2008] 1 AC 561 and Pitt v Holt [2013] UKSC 26, [2013] 2 AC 108.
  • 197 The claimant could have relied in principle on the alternative ground of absence of basis (see p 371, below) but did not wish to do so because a restitutionary claim founded on that ground of restitution would also have fallen outside the limitation period.
  • 198 See p 316, below. For criticism of the total failure requirement, see p 325, below.
  • 199 See p 189, below.
  • 200 See Chapter 13. If partial failure of basis is ever recognized as a ground of restitution in its own right the distinction between the grounds of mistake and failure of basis will be less apparent, since then as regards both grounds of restitution the claim will only fail to the extent that the basis has failed. See p 327, below.

Thirdly, mistake and failure of basis are recognized as grounds of restitution for very different reasons. Mistake is a ground of restitution because it operates to vitiate the claimant’s intention to transfer a benefit to the defendant. Where, however, there has been a total failure of basis the claimant’s intention is always valid but is qualified by the claimant’s expectation that some condition will be satisfied, typically that a benefit will be provided by the defendant in return. Once it is clear that the condition has failed, the ground of restitution is established. It follows that whether the claimant has made a mistake can only be determined at the time the benefit is transferred to the defendant, whereas the question of whether there has been a failure of basis can only be determined after the claimant has transferred the benefit to the defendant.[1] Mistake and failure of basis are consequently determined at different times. They both have a significant, albeit different, role in establishing the defendant’s unjust enrichment.

  • [1] This distinction was recognized by Lord Shaw in Jones Ltd v Waring and GillowLtd [1926] AC 670, 690:‘when ...a payment [is] made under a mistake of fact, that mistake has reference to occurrences which havetaken place or things which have been done prior to or at the time of the transaction ...on the other hand theimposition of a condition upon the making of a payment... that affects the future... ’. See also Brennan J inDavid Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353, 390.
 
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