(iii) Particular Circumstances in Which Title Will Pass

Although in most cases where the claimant transfers property to the defendant title will pass to the defendant, it is worth emphasizing three situations where title will pass because it might be thought that the nature of the transfer would prevent this.

  • (1) Failure of Basis
  • (a) Total failure of basis

Where the claimant has transferred property to the defendant in the expectation that a benefit would be received in return and this benefit is not forthcoming, this failure of basis will not revest title in the claimant.139 This was recognized by the Privy Council in Re Goldcorp Exchange Ltd,140 where the claimants had paid money for bullion which was never allocated to them. Even though the basis for their payment had failed totally it was held that title to the money had passed to the defendant company and could not be revested. Consequently, the claimants were confined to a restitutionary claim founded on the reversal of the defendant’s unjust enrichment, with the ground of restitution being total failure of basis.[1] This is surely right. The claimants initially intended title to pass in the expectation that a benefit would be received. The failure to receive a benefit subsequently is not a sufficient reason to revest title in the claimants.

(b) Absence of basis[2] [3] [4]

Sometimes there may appear to be greater scope for a proprietary restitutionary claim to be made where the basis for a transaction has failed, such as where the claimant transfers property to the defendant pursuant to a transaction which turns out to be null and void. Whether it is possible in such a case to treat the claimant’s intention that title should be transferred to the defendant as vitiated was an issue which arose in the interest rate swaps litigation, where money was paid by banks and local authorities pursuant to interest rate swap transactions which were held to be null and void because they were ultra vires the local authorities. Even though the transactions were void the House of Lords in West- deutsche Landesbank Girozentrale v Islington LBC143 recognized that title to the money did pass under the transactions, so the claimant was unable to bring a proprietary claim to

144

recover it.

Whether Westdeutsche Landesbank is correct depends on whether the claimant’s intention to transfer title should be considered to have been vitiated when as a matter of law the transaction was void from the start. In Westdeutsche Landesbank Lord Goff considered the proper analogy to be with a case of breach of contract where there has been a total failure of basis.[5] This is not convincing because, where a contract has been set aside for breach, it is obvious that title to property will already have passed. Where, however, the contract is void the situation is different because there never was an underlying transaction. Despite this difference, the decision of the House of Lords is surely correct. The question with which we are concerned is whether the claimant’s intention to transfer title can be regarded as vitiated. At the time Westdeutsche Land- esbank was decided a claimant could not rely on mistake of law to establish a restitutionary claim. Consequently, the claimant relied on failure of basis, specifically absence of basis. But, just because the expected basis for the claimant’s transfer of property can never be received as a matter of law, this is not a reason to vitiate the claimant’s intention that title should pass.[6] The House of Lords has, however, subsequently recognized that a mistake of law may ground a restitutionary claim.[7] It follows that, where a claimant transfers a benefit to the defendant in the belief that the underlying transaction was valid when it was in fact void, the claimant was mistaken at the time the benefit was transferred. If this could be considered to be a fundamental mistake it would be sufficient to vitiate the claimant’s intention that title to property should pass to the defendant. It is unlikely, however, that such a mistake will be fundamental since it is not a mistake as to the identity of the defendant or the property or even as to the quantity of the property transferred. It is simply a mistake as to the liability to pay the defendant and this is not fundamental since it is a mistake only as to motive.148

(2) Illegality

If the claimant has paid money to the defendant pursuant to an illegal transaction, the fact of illegality will not prevent title in the property from passing to the defendant. This was recognized in Singh v Ali.[8] This is presumably because, even though the transaction itself is void for reasons of public policy, the claimant intended that property should pass and the law recognizes this intention. But such a conclusion contradicts the basic policy of the law relating to illegal transactions which is simply that such transactions should have no effect.[9]

  • (3) Incapacity
  • (a) Minority

Where the claimant transfers property to the defendant the fact that the claimant is a minor will not prevent title from being transferred.[10] Similarly, where the claimant transfers property to the defendant, the fact that the defendant is a minor will not prevent title from being transferred. As regards this latter situation, however, the effect of section 3 (1) of the Minors’ Contracts Act 1987 is that a minor may be required to transfer to the other party to the contract any property which was acquired by the minor under the contract or any property which represents the original property, as long as the court considers it to be just and equitable that such a transfer is made. No case has yet considered the meaning of this statutory provision, so it remains unclear when it will be just and equitable to make such a transfer of property. If the provision is interpreted literally, however, it seems that it is confined to proprietary restitutionary claims. Consequently, if the minor has disposed of the property which has been obtained, and there is no other property which represents it, restitution under the statute will be denied. The statute will also only be applicable where property has been transferred pursuant to a contract and will not extend to the recovery of gifts.

(b) Institutional incapacity

Where the claimant transfers property to the defendant and one of the parties to the transaction is an institution which lacks capacity to participate in it, this should not prevent title from passing. It has, however, been suggested that where a public authority makes a payment which it lacks capacity to make it will have a proprietary claim to recover what it has paid.[11] But this is inconsistent with Westdeutsche Landesbank which suggests that title will pass even though it is transferred pursuant to an ultra vires transaction. The only possible justification for concluding that title should not pass where a public authority lacks capacity to transfer the property, is by reference to public policy. Consequently, it may be concluded that the policy which makes the transaction ultra vires in the first place, namely to protect taxpayers, should be followed through to its logical conclusion to ensure that the public authority cannot lose its proprietary rights.

(4) Exploitation

Since the grounds of restitution which are founded on exploitation are equitable it follows that the defendant’s exploitation of the claimant will not prevent legal title from passing to the defendant.[12]

  • [1] See Chapter 13. This claim was worthless because the defendant was insolvent.
  • [2] See p 371, above. 143 [1996] AC 669.
  • [3] 144 That title passes under an ultra vires transaction was accepted in Ayers v South Australian Banking Corp
  • [4] (1871) LR 3 PC 548. See also Challinor v Bellis [2015] EWCA Civ 59, [108] (Briggs LJ).
  • [5] Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669, 689 (Lord Goff).
  • [6] Save, perhaps, where the court considers that, since public policy demands that the transaction shouldbe void, public policy should also demand that title to the property should be revested in the claimant. But thisis a difficult argument because of the inherent uncertainty in determining what public policy demands.
  • [7] Kleinwort Benson Ltd v Lincoln CC [1999] 2 AC 349. 148 See p 574, above.
  • [8] Singh v Ali [1960] AC 167. See also Belvoir Finance v Stapleton [1971] QB 210. CfMJ Higgins, ‘TheTransfer of Property Under Illegal Transactions’ (1962) 25 MLR 149 who argues that property should not passunder illegal transactions. Restitution of property which has been transferred pursuant to an illegal transactionis examined at p 589, below.
  • [9] See Chapter 27. 151 Chaplin v Leslie (Frewin) Publishers Ltd [1966] Ch 71.
  • [10] 152 See Lord Goff in Woolwich Equitable Building Society v IRC [1993] AC 70, 177, commenting on
  • [11] Auckland Harbour Board v The King [1924] AC 318.
  • [12] Allcard v Skinner (1887) 36 Ch D 145, 190 (Bowen LJ).
 
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