(ii) Apportionment of the Basis

The second mechanism for avoiding the strict rigours of the total failure requirement is through the apportionment of the basis where the benefits to be provided under a contract can be considered to be divisible. What this means is that where, for example, the claimant has purchased a number of different items from the defendant and paid for them in advance, if the defendant fails to supply one of these items and the claimant accepts those which have been delivered, the claimant might be able claim repayment of the price of the item which was not delivered on the ground that, as regards that item, the basis has totally failed.^[1] In other words, it might be possible to apportion the basis for the payment of the goods between the goods received and the goods which the claimant had not received, so the receipt of the former does not preclude restitution on the ground of total failure of basis in respect of the payment for the latter.

Traditionally apportionment was only considered to be available where the contract provided for apportionment either expressly or impliedly, such as where provision is made for delivery of goods in instalments. In Goss v Chilcott^[2] the Privy Council expanded the situations where apportionment is available to include those cases where it could be carried out without difficulty. In that case a finance company had lent money to the defendants on the security of a mortgage over their property. In a separate transaction the defendants had lent this money to a director of the finance company. The purpose of this transaction was effectively to enable the director to borrow money from the company of which he was director, which he was prohibited from doing. The director, in his capacity as agent of the finance company, altered the mortgage instrument without the consent of the defendants. This meant that the security was unenforceable as against the defendants, so their contractual liability to repay the money to the finance company was automatically discharged. The finance company having gone into liquidation, the claimant liquidator sought to recover the amount of the loan from the defendants in a restitutionary claim founded on the ground of total failure of basis. The difficulty for the claimant was that the defendants had already made two payments to the finance company in respect of interest, so they argued that the basis for the transaction had not totally failed. Lord Goff delivered the opinion of the Privy Council and held that the basis for the transaction had failed totally. This was because the restitutionary claim related to repayment of capital and no part of the capital had been repaid, rather the defendants had simply been repaying interest. This is a perfectly acceptable conclusion since, although the defendant’s obligation to pay interest and capital arose under the same transaction, the obligations arose for different reasons, interest payments being payments for the use ofthe capital rather than the return of the capital. To the extent that it is possible to say, as it was in this case, that the money paid by the defendants related either to interest or to capital and that only interest had been repaid, the decision is correct.

However, Lord Goff also said:

even if part of the capital sum had been repaid, the law would not hesitate to hold that the balance of the loan outstanding would be recoverable on the ground of failure of consideration; for at least in those cases in which apportionment can be carried out without difficulty, the law will allow partial recovery on this ground...^[3]

This is more difficult to justify. Where, for example, the claimant lends ?1,000 to the defendant who repays ?400, can it really be said that, as regards the outstanding amount, the basis had failed totally? What is being apportioned in this case? Surely it should only be possible to apportion the basis in this way if, for example, the contract of loan itself provided for repayment by instalments. As the High Court of Australia said in David Securities Pty Ltd v Commonwealth Bank of Australia,⁷⁸ it is only where the parties have impliedly acknowledged that the basis may be apportioned by the structure of the transaction that apportionment will be possible. In such circumstances, if two of five instalments have been paid it could still be argued that the basis has failed totally in respect of the final three instalments, which would then be recoverable. But in Goss v Chilcott the whole loan was repayable three months after it was made; it was only the interest payments which were payable in instalments. There is therefore no justification for saying that, if the defendants had repaid part of the loan, the basis would have failed totally in respect of the outstanding sum, simply because there was nothing in the loan transaction to suggest that the payments could be apportioned in this way.

Although the dictum of Lord Goff was obiter and was from a decision of the Privy Council, this broad approach to apportionment was adopted in Giedo van der Garde BNV v Force India Formula One Team Ltd,⁷⁹ where Stadlen J identified the appropriate test as being whether, as a matter of common sense, the court considers that it is able to make an apportionment of the benefits to be provided under the contract by an objective analysis of the nature of the contract and the circumstances in which the benefit is to be delivered or performed by the defendant. He justified the apportionment principle on the ground that restitution will not be barred where the benefit which the claimant has received is ‘part or all of the consideration for another part of the money paid by the claimant pursuant to a different part of or obligation under the contract... ’ ⁰ In Barnes v Eastenders Cash and Carry plc⁸¹ Lord Toulson acknowledged that the courts would be willing to sever the basis ‘where it reflects commercial reality’.

In Giedo van der Garde Stadlen J emphasized that the court should adopt a flexible and robust approach to apportionment. It follows that apportionment is possible even where the contract has provided for payment by the defendant as a lump sum for goods or services which have been provided by the claimant. Whether apportionment is possible will require careful examination of the nature of the contract and the identity of the performance which the claimant can be considered to expect in return for the benefit which has been transferred.^{[4] [5] [6] [7]} For example, in Whincup v Hughes⁸³ the claimant paid a watchmaker a lump sum for his son to be the watchmaker’s apprentice for six years. After one year the watchmaker died and the claimant sought to recover part of the money he had paid. This claim failed on the ground that the basis for the payment had not failed totally. In Giedo van der Garde Stadlen J said that apportionment of the basis was not possible in Whincup v Hughes because of the particular context of the contract of service. This was because the benefits and burdens of the watchmaker’s services to the apprentice varied over time, since the benefit and burden of the service would have been much greater in the first year than in the fifth.^{[8] [9]} In Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd,⁸⁵ it was recognized that, where rent had been paid quarterly in advance and the lease ended through the exercise of a break clause on a specified date in the middle of the quarter, the excess rent could not be recovered since there was not a total failure of basis. Morgan J held that it was not appropriate to apportion the rent between the period when the tenant occupied the premises and when it did not. In the light of Goss v Chilcott and Guido van der Grade, this is difficult to justify, because the quality of the benefit from occupying the premises would not have varied during the period of occupation. Indeed, as Morgan J acknowledged, restitution will be awarded of the surplus amount paid in respect of the hire of a ship,^[10] so there is no reason why rent of a property should be treated differently.^[11]

In Giedo van der Garde Stadlen J considered carefully whether apportionment was available on the facts of the case itself. Having already held that some of the benefits which the claimant had received were collateral,^[12] the key question was whether the claimant could recover part of the $3 million he had paid to test drive at least 6,000 kilometres, when he had only driven just over 2,000 kilometres. Stadlen J accepted that, in principle, it would be possible to apportion the lump sum payment and express it as $500 per kilometre. It would follow that, for each kilometre that he had not been able to drive, there was a total failure of basis.^[13] However, on the peculiar facts of this case, Stadlen

J concluded that he was unable to apportion the basis in this way, because the driving options included practice driving before Grand Prix races, which would have been much more beneficial to the claimant in his desire to become a Formula One racing driver. Since the question of apportionment was to be determined at the time the contract was made, and not in the light of subsequent events, it followed that the value of the benefit which the claimant expected to receive from the defendant would vary depending on the type of driving which was available to him, similar to the benefit of the watchmaker’s services in Whincup v Hughes which varied over time. Essentially, therefore, apportionment was not possible because the value of each kilometre driven would vary depending on whether it was test or practice driving. It followed that the restitutionary claim failed. The claimant was, however, able to recover substantial damages for breach of contract.

Although apportionment was unavailable in Giedo van der Garde, the broad interpretation of that principle, following the approach of Lord Goff in Goss v Chilcott, whereby apportionment is available even where the claimant has made a lump sum payment, constitutes a significant way of avoiding the total failure bar, and makes the continued existence of that bar vulnerable. This had been recognized by the High Court of Australia in David Securities Pty Ltd v Commonwealth Bank of Australia,⁹⁰ where the plurality acknowledged that, once it is accepted that the basis can be apportioned, ‘any rationale for adhering to the traditional rule requiring total failure of consideration disappears’.⁹¹ Although it is not yet possible to conclude that partial failure of basis is an independent ground of restitution in its own right, particularly because the Privy Council in Goss v Chilcott affirmed that the basis must fail totally,⁹² and this rule was subsequently affirmed in Stocznia and by Stadlen J in Giedo van der Garde, the wide interpretation of apportionment significantly restricts the application of the total failure requirement.

The fact that this wide interpretation of apportionment provides a significant mechanism for manipulation of the total failure of basis requirement is illustrated by the bizarre decision of the Court of Appeal in DO Ferguson v Sohl,⁹³ a decision which was commended by Stadlen J in Giedo van der Garde.⁹⁴ In Ferguson v Sohl the claimant had paid ?6,268 to the defendant, of which ?4,673 constituted an overpayment. It was held that the claimant could recover the overpayment on the ground of total failure of basis. Hirst LJ specifically stated⁹⁵ that the money was recoverable even though it formed part of a larger payment. But it is an abuse of language to say that the money was recoverable on the ground of total failure of basis since the basis had not failed totally. The result might be explained on the ground of apportionment of basis, but there was nothing in the contract which enabled such an apportionment to be made. Consequently, the case is better analysed as one where restitution was awarded on the ground of partial failure of basis. The importance of the case is that the Court of Appeal clearly considered that restitution should follow as a matter of common sense because the claimant had paid money to the defendant for work which had never been done. Indeed, in commending the decision in Giedo van der Garde, Stadlen J said⁹⁶ ‘[it is] a good example of the willingness of the court to adopt a flexible and robust approach so as to avoid, if consistent with existing principle, leaving a victim of unjust enrichment without an effective remedy’.

• 90 Ibid. ⁹¹ Ibid, emphasis in the original.
• 92 Goss v Chilcott [1996] AC 788, 797. ⁹³ (1992) 62 BLR 95.
• 94 Giedo van der Garde BNV v Force India Formula One Team Ltd [2010] EWHC 2372 (QB), [323].
• 95 DO Ferguson v Sohl (1992) 62 BLR 95, 105. Surprisingly, no reference was made to mistake as a possible ground of restitution.
• 96 Giedo van der Garde BNV v Force India Formula One Team Ltd [2010] EWHC 2372 (QB), [323].

The real problem with the notion of apportionment of basis is how principled it can be considered to be, or whether it is really just a smoke-screen behind which the judge can avoid the total failure of basis requirement.

• [1] As was recognized by Bovill CJ in Whincup v Hughes (1871) LR 6 CP 78, 81. See also Devaux v Connolly(1849) 8 CB 640, 137 ER 658.
• [2] [1996] AC 788. Apportionment has also been recognized by the High Court of Australia in DavidSecurities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353, 383; Roxborough v Rothmans of PallMall Australia Ltd (2001) 76 ALJR 203. See also Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe BarbourLtd [1943] AC 32, 77 (Lord Porter).
• [3] Goss v Chilcott [1996] AC 788, 798. 2 (1992) 175 CLR 353, 383.
• [4] Giedo van der Garde BNV v Force India Formula One Team Ltd [2010] EWHC 2372 (QB), [360].
• [5] [2014] UKSC 26, [2015] AC 1, [114].
• [6] See also F Wilmot-Smith, ‘Reconsidering “Total” Failure’ (2013) CLJ 414, 435.
• [7] (1871) LR 6 CP 78.
• [8] Giedo van der Garde BNV v Force India Formula One Team Ltd [2010] EWHC 2372 (QB), [305].
• [9] [2013] EWHC 1279 (Ch), [42] (Morgan J).
• [10] Wehner v Dene Steam Shipping Co [1905] 2 KB 92; The Mihalios Xilas [1979] 1 WLR 1018.
• [11] On the facts of the case a term was implied to provide for recovery of the surplus.
• [12] See p 321, above.
• [13] Giedo van der Garde BNV v Force India Formula One Team Ltd [2010] EWHC 2372 (QB), [362].