(ii) Arguments Against Recognizing Partial Failure of Basis

The requirement that the basis must fail totally has traditionally been justified for two main reasons. First, because of a concern about unsettling the parties’ contractual bargain.^[1] Where, for example, the claimant has entered into a contract to buy 1,000 oranges from the defendant at ?1 each, and has paid ?1,000 in advance, if the defendant delivers 500 oranges but fails to deliver the rest, the claimant can either sue for damages for breach of contract or for restitution, with the ground being total failure of basis through apportionment of that basis. If the market value of the oranges is ?1, it makes no difference whether the claimant seeks damages for breach, namely what the defendant must pay the claimant to enable her to buy 500 oranges, or restitution of the defendant’s gain, since it will be ?500 in each case. If, however, the market value of oranges has risen so that they now cost ?2 each, it would be preferable for the claimant to seek damages for breach of contract, which would be assessed at ?1,000, rather than restitution of the ?500. It is where the market has fallen, for example where oranges now cost 50p each, that the claimant would prefer to bring a claim for restitution. The key question then is whether it should be possible for the claimant to opt out of the contractual regime where she has entered a bad bargain such as this, where the contractual price of oranges is higher than the market value, and pursue a claim in unjust enrichment instead. But the requirement that the basis must have failed totally cannot be justified by the need to ensure that claimants remain bound by bad bargains. A claimant can recover money paid on the ground of total failure, regardless of whether the bargain was good or bad. So, if the defendant fails to supply any oranges the claimant could recover the advance payment, even if the market value of oranges has slumped. The fact that the defendant has supplied some oranges, or some service where the basis is not apportionable, should make no difference to the restitutionary claim. The contractual bargain is always respected in that, if it is still operating, restitution will be denied. But, once the contract has been set aside, the nature of the bargain should generally be irrelevant, save exceptionally where the structure of the bargain continues to apply, such as where an obligation is characterized as entire^[2] or where the contract can be construed so that the claimant can be considered to have taken the risk that, should the basis fail, he or she should be confined to the remedies for breach of contract rather than seeking restitution for the defendant’s unjust enrichment.^[3]

The second justification which has been suggested for maintaining the total failure requirement relates to the ability of the court to require the claimant to make counterrestitution to the defendant. In most cases where the basis has only failed partially this is because the claimant had received a benefit from the defendant. It would be unjust to require the defendant to make restitution to the claimant in such circumstances without requiring the claimant to make counter-restitution to the defendant of the value of the benefit received. Unfortunately, the ability of the courts to require counter-restitution has developed very slowly. The attitude of the Common Law courts was that, if the claimant had received a benefit from the defendant, this could only be restored to the defendant in specie and only then, apparently, where the transaction was voidable for a fraudulent misrepresentation. It followed that, if the claimant had received a benefit which had been dissipated or by its nature could not be restored, such as a service, counter-restitution was not possible and so the claim for restitution would fail. The attitude of Equity became much more generous in such circumstances, because Equity was willing to require the claimant to restore the value of the benefit which had been received if the benefit itself could not be restored.^[4] There is some evidence that this approach would also be adopted at Common Law as well.^[5] If so, it would follow that, in every case where the claimant had not received everything which he or she had expected to receive under a contract which was no longer operating, the claimant could recover the benefits which had been transferred to the defendant but the claimant would need to make counter-restitution of the value of all benefits which the defendant had provided. It will only be in the most exceptional circumstances that it would not be possible to value the benefit received from the defendant; but where this is the case it should follow that the claimant’s restitutionary claim would be barred.^[6]

Wilmot-Smith^[7] has sought to defend the essence of the total failure requirement through a radical reinterpretation of what that requirement actually entails, namely that it requires only for there to be a substantial failure of the basis before restitution is justified. This means that restitution will lie if a substantial part of the basis is not satisfied. His interpretation is consistent with the collateral benefit cases, where the language of collaterality indicates that the failure was not substantial; with the entire contract cases, where any failure of performance by a party whose obligation is entire is characterized as substantial; and with cases involving the transfer of goods or the supply of services, where part payment by the defendant is normally treated as insubstantial performance. He defends the substantial performance requirement on the basis that the law of unjust enrichment should not undermine the law of contract and should ensure that restitution is only available where damages are inadequate. Whilst this analysis of the law seeks to rationalize and reinvent the total failure requirement, it cannot be considered to be a satisfactory explanation of the modern law where the courts certainly recognize that there is a total failure rather than substantial failure requirement. The fact that Wilmot-Smith seeks to reinterpret what is meant by total failure, reflects the real concern about the injustices caused by that requirement. Wilmot-Smith would wish to moderate restitution on the ground of failure of basis by limiting it to where the basis failed substantially. How ‘substantial’ is to be interpreted will raise new problems. This test does not represent the law and nor should it do so.

• [1] J Taylor, ‘Total Failure of Consideration and Roxborough v Rothmans (2004) 120 LQR 30.
• [2] See further p 335, below.
• [3] Goodwin, ‘Failure of Basis in the Contractual Context’, considers that a claimant should be consideredto take this risk in all cases, which would mean that there would be no scope for restitution on the groundof failure of basis in the contractual context. That does not represent the law and such artificial deemedrisk-taking should not be recognized.
• [4] See Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218; O’Sullivan v Management Agencyand Music Ltd [1985] QB 428. See p 25, above.
• [5] Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1997] AC 254, 262 (LordBrowne-Wilkinson).
• [6] For analysis of the issues concerning the relationship between ‘counter-restitution’ and total failure of
• [7] basis see E McKendrick, ‘Total Failure of Consideration and Counter-restitution: Two Issues or One?’ in PBHBirks (ed), Laundering and Tracing (Oxford: Clarendon Press, 1995), and Birks, ‘Failure of Consideration’,193 -8. 109 Wilmot-Smith, ‘Reconsidering “Total” Failure’.