#10035 - Mistake - Restitution of Unjust Enrichment

MISTAKE

MISTAKE AND FAILURE OF CONSIDERATION

1. Where a contract is void or unenforceable, C will commonly be able to point to mistake or failure of consideration (ie. Rover International) BUT

2. As failure of consideration needs to be total, mistake is better (especially as it includes mistake of law)

MISPREDICTIONS

1. Birks – mistake refers to the present. A mistake as to the future is a misprediction, which don’t trigger restitution because C necessarily takes the risk of being incorrect about the future.

2. Seah - A misprediction doesn’t involve an impairment of consent nor wrong data being fed into C’s decision-making process

3. Dextra Bank v Bank of Jamaica – Privy Council expressly approved Birk’s defintion

TRADITIONAL SUPPOSED LIABILITY TEST

1. Used to be a supposed liability test for mistake that stated that: money was recoverable in an action for money had and received if the payor paid in the false belief that the facts were such that it was under a legal liability to the payee to make the payment

2. This supposed liability test was stated in Kelly v Solari and Aiken v Short

3. Kelly v Solari

• Relied on this test

• FACTS: C insurance company paid over money on a life insurance policy, apparently not realizing that the policy had lapsed because the deceased had failed to pay a premium. A new trial was ordered to ascertain whether C had indeed made a mistake but, if it had, the money was held to be recoverable.

4. NEGLIGENCE

1. in Kelly v Solari it was irrelevant that the claimant insurance company ought to have the policy had lapsed

2. Barclays Bank v WJ Simms – restitution was allowed here despite negligence

Exceptions to Supposed Liability Test

Burrows highlights a number of cases that could not be explained according to the traditional supposed liability test. He said these exceptions paved the way for the ‘path-breaking decision’ in Barclays Bank v WJ Simms. These exceptions fall into two categories:

1. Cases which could be justified on an extended meaning of supposed liability

1. Re Jones Ltd

• C paid money to D under the mistaken belief that it was bound to do so under a legal liability to a third party

2. Cases which could not be so justified

1. Kerrison v Glyn

• C had standing arrangement with bank that bank would pay X and C would reimburse the bank by putting money into an account. C made the payment, not knowing that the bank had gone bankrupt. C could recover this payment under rest.

• C had a mistake believing he would be liable in the future to the bank, but one cannot have mistake as to the future.

2. Morgan v Ashcroft

• Sir Wilfred Greene MR said obiter that mistake as to the identity of the recipient of a gratuitous payment was recognised as a possible ground for recovery and clearly this could not be justified on any extended meaning of supposed liability

SWITCH TO PRIMA FACIE CAUSATION TEST

1. Barclays Bank v WJ Simms

• QBD – Goff J launched an attack on supposed liability rule and suggested a switch to a new prima facie causation test

• One of his criticisms of supposed liability test: ‘A man, forgetting that he has already paid his subscription to the National Trust, pays it a second time’ – under supposed liability this would not be a mistake that would ground mistake

• He didn’t say that the causation test was ‘but for’, but Burrows says that the decision is clearly explicable on this basis PLUS

2. Nurdin and Peacock – Neuberger J applied Goff’s reasoning using a ‘but for’ test

3. DMG v IRC – HL explicitly approved Goff J’s approach and ‘but for’ test for causation in mistaken payment cases

BARCLAYS BANK V WJ SIMMS

1. FACTS: the claimant bank had overlooked a stop instruction on a cheque for 24k drawn by its customer, X, in favour of D. C sought to recover the 24k from D as money paid under a mistake of fact.

2. DECISION: traditional supposed liability test would have failed, as C was not under a legal liability to pay D. But Goff J said that the money should be recoverable because it was caused by the claimant’s mistake of fact.

3. QUOTE:‘If a person pays money to another under a mistake of fact which causes him to make the payment, he is prima facie entitled to recover it as money paid under a mistake of fact’

4. Goff J also said it doesn’t matter what type of factual mistake it is

QUALIFICATION: DOUBTS AND RISK-TAKING

1. Quote

1. Goff J: ‘the payor intends that the payee shall have the money at all events whether the fact be true or false, or is deemed in law so to indend’

2. Meaning

1. Burrows – isn’t sure what Goff J meant by this, but perhaps it relates to what Goff and Jones call ‘a submission to an honest claim’ THUS

2. This means that C assumed the risk of his mistake. Where...