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(B) MANIPULATING THE NOTION OF TOTAL FAILURE OF BASIS

Although this ground of restitution depends on the basis failing totally, the courts have manipulated the notion of total failure. There are, in particular, two judicial techniques by virtue of which certain benefits received by the claimant can be discounted so that they will not prevent the basis from failing totally. The first technique involves ignoring the receipt of collateral benefits and the second involves the apportionment of benefits received.

(i) Receipt of Collateral Benefit

Where the claimant has received a benefit from the defendant this will only be considered to be a relevant benefit for the purposes of establishing whether or not the basis has failed totally where it was an essential benefit for which the claimant had bargained. If the benefit did not form part of the main benefit bargained for under the contract,[1] it will be considered to be collateral and can be discounted, so that its receipt will not prevent the basis from failing totally. This should be determined from the perspective of the claimant and by reference to his or her purpose in contracting with the defendant, albeit that this purpose is to be determined objectively.

The application of this collateral benefit principle is illustrated by Rowland v Divall[2] where the claimant had bought a car from the defendant and, having used it for over four months, discovered that it had been stolen and was compelled to return it to its true owner. He then sought to recover the purchase price from the defendant on the ground of total failure of basis and succeeded, even though he had used the car for a substantial period of time. This period of use was characterized as a collateral benefit, since the real benefit for which the claimant had bargained was lawful possession of the car with good title and he had not obtained this at all. This is a somewhat strange conclusion, since anybody who purchases a car presumably expects to be able to use it, but the decision illustrates a desire to prevent the rigours of the total failure of basis doctrine from barring restitution where the award of a restitutionary remedy appears appropriate.69 *

Rowland v Divall can be contrasted with Yeoman Credit Ltd v Apps,70 where the defendant had entered into a hire purchase agreement with the claimant by virtue of which he obtained possession of a car in an unroadworthy condition. Despite this, he used the car for six months. The defendant failed to keep up with the hire payments and the claimant recovered the car. The claimant then sued the defendant for arrears and the defendant counterclaimed for recovery of the hire payments he had made on the ground of total failure of basis. The defendant’s counterclaim failed because he had obtained some benefit from the use of the car. Rowland v Divall was distinguished because, in that case, the contract was one of purchase and so the claimant had not obtained that for which he had bargained, namely good title, whereas in Yeoman Credit Ltd v Apps, the contract was one of hire purchase, so the claimant was assumed simply to have bargained for the use of the car, and this he had obtained, albeit the quality of the use was not what he had expected.

Rowland v Divall was followed by the Court of Appeal in Rover International Ltd v Cannon Film Sales Ltd (No 3),71 where the claimant was able to recover money which it had paid to the defendant in respect of a contract for the distribution of films in Italy. One ground for restitution of this sum was that the basis for the payment had totally failed, even though the claimant had received films from the defendant under the contract. This was because the receipt of the films was not considered to constitute the receipt of a benefit under the contract, since ‘delivery and possession [of the films] were not what [the claimant] had bargained for’.72 Rather, the claimant was deemed to have bargained for the opportunity to earn a substantial share of the gross receipts from the distribution contract and it had not been able to earn anything because the contract, being a preincorporation contract, was void. Consequently, since the claimant got nothing of what it had bargained for, the court was able to order restitution of the money it had paid to the defendant.

The interpretation of total failure of basis in both Rowland v Divall and Rover International is open to criticism, since the benefit which was received in both cases surely formed a necessary part of the bargain. In Rowland v Divall, for example, the use of the car was a crucial benefit which the claimant expected to obtain as an essential part of the contract to purchase the car. Similarly, in Rover International the claimant could not make any profit from the distribution of the films if it had not received them in the first place. The cynical interpretation of these cases is that the court considered that restitution should be awarded and did not wish to be defeated in this objective by the fact that the basis must fail totally if it is to constitute a ground of restitution. This covert manipulation of the concept of basis by characterizing the receipt of certain benefits as collateral is unsatisfactory, leading as it does to great uncertainty. It would have been so much easier in [3] [4]

these cases if it was acknowledged that partial failure of basis is a satisfactory ground of restitution in its own right. For that is the effect of these decisions, namely that restitution is being awarded on the ground of failure of basis even though the claimant had received some benefit by virtue of the defendant’s performance of his or her side of the bargain.

The complexity and significance of characterizing benefits received as collateral is especially well illustrated by the difficult and important case of Giedo van der Garde BNV v Force India Formula One Team Ltd.[5] Van der Garde is a racing driver with an ambition to become a Formula One driver.[6] He entered into a contract with the defendant whereby he agreed to pay $3 million to the defendant in return for being permitted to drive a Formula One racing car in testing, practice, or racing for a minimum of 6,000 kilometres during the 2007 racing season. The aim of this was to enable him to gain sufficient experience to progress to become a Formula One driver. The claimant paid the defendant the money but, in breach of contract, the defendant only permitted the claimant to drive just over 2,000 kilometres. The claimant sought restitution of the money paid. One obstacle to his claim was that he had received certain benefits under the contract, including the provision of sponsorship spaces on his car and a race suit and paddock passes. It was held that these benefits were not essential to the contract, which was concerned with giving the claimant sufficient driving experience, so that they could be treated as collateral benefits. He had, however, received some driving experience which could not be characterized as a collateral benefit, since it formed the essential part of the bargain. Whether this barred a restitutionary claim grounded on total failure of basis required consideration of the second technique for manipulating the total failure requirement.

  • [1] Giedo van der Garde BV v Force India Formula One Team Ltd [2010] EWHC 2373 (QB), [285] (Stadlen J).
  • [2] [1923] 2 KB 500. See also Warman v Southern Counties Car Finance Co Ltd [1949] 2 KB 576 and Barber vNWS Bank plc [1996] 1 WLR 641.
  • [3] Rowland v Divatt was followed in Butterworth v Kingsway Motors Ltd [1954] 1 WLR 1286 where theclaimant recovered the purchase price of the car on the ground of total failure ofbasis even though he had usedthe car for 11 months.
  • [4] [1962] 2 QB 508. 71 [1989] 1 WLR 912. 72 Ibid, 925 (Kerr LJ).
  • [5] [2010] EWHC 2372 (QB).
  • [6] He is presently a reserve driver for a Formula One racing team.
 
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