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FAILURE OF BASIS

GENERAL PRINCIPLES

(A) THE PRINCIPLE OF FAILURE OF BASIS

Where the claimant transfers a benefit to the defendant pursuant to a transaction which is subject to a condition, known as a basis, and this condition has not been satisfied, there has been a failure of the basis for the transfer of the benefit which may enable the claimant to bring a claim for restitution. Traditionally, this principle was called failure of consideration. This is, however, potentially confusing[1] because consideration has a particular meaning in the law of contract, where it refers to the advantage conferred or the detriment suffered which makes a promise binding.[2] Consideration for the purposes of the law of restitution is not concerned with the existence of the promises under a contract, but with the performance of promises and other non-promissory conditions as well. Consequently, even though the language of ‘failure of consideration’ will be found in many of the cases and commentaries, the language of failure of basis is used in this book.[3] Indeed, this term has now found favour in the Supreme Court.[4]

Failure of basis is not a ground of restitution in its own right, but is a general principle which underlies the existence of a number of particular grounds of restitution. They operate in broadly the same way as the other recognized grounds of restitution, namely that restitution should be awarded because the claimant’s intention that the defendant should receive the benefit has been vitiated. This was recognized by Lord Wright in Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd:[5] ‘There was no intent to enrich [the defendant] in the events which happened. . . . The payment was originally conditional. The condition of retaining it is eventual performance. Accordingly, when that condition fails, the right to retain the money must simultaneously fail.’

But, whereas for grounds of restitution such as mistake and duress, the claimant’s intention is vitiated at the point when the claimant transfers the benefit to the defendant, this is not generally the case where the claimant relies on grounds of restitution which are founded on the principle of failure of basis. This is because in such cases the claimant does validly intend the defendant to receive the benefit at the time of the transfer. This intention is vitiated only because of subsequent events. Consequently, the effect of the basis for the transfer failing is retrospectively to vitiate the claimant’s intention that the defendant should receive the benefit.[6] It is therefore preferable to treat the claimant’s intention as qualified by means of the condition, so that if the condition is not satisfied the basis will have failed and the claimant’s intent that the defendant should retain the benefit will no longer be effective.

The grounds of restitution which are founded on failure of basis are most likely to operate in a contractual context, where the usual basis for the transfer of a benefit to the defendant is that he or she promises to do something in return for the benefit received. Consequently, the fundamental principle that restitution is not available whilst the contract subsists is especially significant.[7]

  • [1] J Goodwin, ‘Failure of Basis in the Contractual Context’ [2013] RLR 24.
  • [2] Midland Bank Trust Co Ltd v Green [1981] AC 513, 531 (Lord Wilberforce).
  • [3] It will be used to explain the analysis of the cases even where those cases used the language of failure ofconsideration.
  • [4] Barnes v Eastenders Cash and Carry plc [2014] UKSC 26, [2015] AC 1, [105] (Lord Toulson). See alsoSpaul v Spaul [2014] EWCA Civ 679, [50] (Rimer LJ). Sometimes ‘failure of condition’ has been used. SeeFibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32,64-5 (Lord Wright); Anderson vMcPherson (No 2) [2012] WASC 19, [235] (Edelman J).
  • [5] [1943] AC 32, 64-5.
  • [6] The only exception to this analysis of failure of basis is where there never was any possibility of thecondition for the transfer of the benefit being satisfied. See further p 371, below.
  • [7] See p 134, above.
 
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