(i) Good Consideration Provided by the Defendant
In Barclays Bank Ltd v WJ Simms, Son and Cooke (Southern) Ltd[1] Robert Goff J recognized that the claimant would not be able to recover money on the ground of mistake if the defendant had provided consideration for the payment. ‘Consideration’ for these purposes refers to there being some legally effective consequence of the defendant’s receipt of the enrichment, typically through the discharge of a valid debt. The use of the word ‘consideration’ is misleading though, because of its contractual connotations of a requirement to make a promise enforceable. The language of ‘consideration’ is preferably replaced with that of a legally effective basis for the enrichment. It follows that ‘good consideration’ is properly considered to form part of the wider principle that the presence of a legally effective basis for the receipt of the benefit will defeat the claim for restitution.206 That this is how the principle should be analysed was confirmed by Lord Hope in Kleinwort Benson Ltd v Lincoln CC[2] [3] who recognized that the payee of money ‘cannot be said to have been unjustly enriched if he was entitled to receive the sum paid to him’. To the extent that a payment is effective to discharge a valid liability, the claim for restitution will be defeated, even though the claimant was mistaken in making the payment. This was recognized by Lord Sumption in Fairfield Sentry Ltd v Migani,208 who said that a mistaken payment cannot be recovered ‘to the extent [it] discharges a contractual debt of the payee’. In Fairfield Sentry it was concluded, following careful interpretation of the underlying contract, that the claimant was contractually bound to make the payments which it did make and so restitution was not awarded because the payments had discharged a legal liability such that the defendant could be considered to have provided ‘good consideration’. But the restitutionary claim should be defeated only to the extent that there was a legally effective basis for the defendant’s receipt of it. Lord Sumption said that, ‘[s]o far as the payment exceeds the debt properly due, then the payer is in principle entitled to recover the excess’. So, for example, if the claimant mistakenly pays ?1,000 to discharge a debt owed to the defendant which is actually only ?150, the restitutionary claim will only be defeated to the extent of ?150.
The most common situation in which the ‘good consideration’ principle is applicable is where the claimant mistakenly pays a sum of money which has the effect of discharging a debt which was owed to the defendant. The discharge of the debt means that the defendant is no longer enriched at the expense of the claimant to the value of the discharged debt.[4] Whether the claimant’s payment will have discharged a debt depends on whether the payment was accepted or authorized by the debtor.[5] [6] This is particularly important in the context of banking transactions. In Barclays Bank Ltd v WJ Simms, Son and Cooke (Southern) Ltd,211 for example, the claimant bank had mistakenly paid money to the defendant in respect of a cheque drawn on a customer’s account. If, which did not occur on the facts of the case, the mistake which the claimant had made was simply that the customer had sufficient funds in the account it would follow that, since the customer had authorized the payment, the debt which the customer owed to the defendant would have been discharged and the claimant would be forced to recover the money from the customer.[7] But, as occurred on the facts of the case, since the customer had countermanded the payment, it ceased to be authorized and so did not discharge the debt.[8] Consequently, the claimant was able to recover the money from the defendant by reason of the mistake. This seems perfectly fair since, as the debt was not discharged, the defendant could still sue the customer on that debt.[9] Where, however, the debt is discharged because it was an authorized, albeit mistaken, payment, the defendant is entitled to receive the payment and it is not appropriate for the defendant to make restitution of it to
the claimant.[10]
A case in which the ‘good consideration’ principle defeated a restitutionary claim was Aiken v Short,216 where the claimant bank paid money to the defendant to discharge a debt which was owed to the defendant by a third party, the bank mistakenly thinking that it was discharging an incumbrance on property which it owned. The claimant was unable to recover the money from the defendant since the third-party debtor had authorized the payment and so the debt was discharged, which was held to constitute the provision of good consideration by the defendant.217 One point of particular importance about this case was that the discharge of the debt could not be regarded as benefiting the claimant, since, having made the payment, it discovered that it did not own the property which was the subject of the incumbrance. The true beneficiary of the payment was the third-party debtor. This does not matter, for the ‘good consideration’ principle is only concerned with the identification of a legally effective basis for the transfer; whether or not the claimant was benefited as a result is irrelevant.
- [1] 206 See Chapter 7.
- [2] [1999] 2 AC 349, 408 . 208 [2014] UKPC 9, [18].
- [3] 209 Lloyds Bank plc v Independent Insurance Co Ltd [2000] QB 110, 132 (Peter Gibson LJ).
- [4] 210 Customs and Excise Commissioners v National Westminster Bank plc [2003] 1 All ER 327, [2002] EWHC
- [5] 2204 (Ch). See p 235, below. 211 [1980] QB 677.
- [6] 212 See, for example, Lloyds Bank plc v Independent Insurance Co Ltd [2000] QB 110.
- [7] 213 See also Customs and Excise Commissioners v National Westminster Bank plc [2003] 1 All ER 327,
- [8] [2002] EWHC 2204 (Ch).
- [9] Barclays Bank Ltd v WJ Simms, Son and Cooke (Southern) Ltd [1980] QB 677, 703 (Robert Goff J).
- [10] See Kleinwort Benson Ltd v Lincoln CC [1999] 2 AC 349, 408 (Lord Hope); Lloyds Bank plc vIndependent Insurance Co Ltd [2000] QB 110, 132 (Peter Gibson LJ).
