Unjust Enrichment - (Chapter 5) PDF

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5 Mistake

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CHAPTER SUMMARY Introduction The Meaning of Mistake P Birks, An Introduction to the Law of Restitution A Farnsworth, Alleviating Mistakes David Securities Pty Ltd v Commonwealth Bank of Australia Kleinwort Benson Ltd v Lincoln City Council Pitt v Holt The Reason(s) for Recovery H Dagan, ‘Mistakes’ Mistakes of Fact The requirement of causative mistake Kelly v Solari Aiken v Short Barclays Bank Ltd v WJ Simms, Son and Cooke (Southern) Ltd What test of causation? J Edelman and E Bant, Unjust Enrichment Mistaken gifts Pitt v Holt Mistakes of Law Abolition of the mistake of law ‘bar’ Bilbie v Lumley David Securities Pty Ltd v Commonwealth Bank of Australia Difficult issues: uncertain law, invalid law and changes in the law Kleinwort Benson Ltd v Lincoln City Council Judicature Act 1908 (NZ) s 94A Deutsche Morgan Grenfell Group Plc v Inland Revenue Commissioners Commissioner of State Revenue v Royal Insurance Australia Ltd Limitations on Recovery Barclays Bank Ltd v WJ Simms, Son & Cooke (Southern) Ltd ‘Voluntary submission to an honest claim’ David Securities Pty Ltd v Commonwealth Bank of Australia

5.1 5.4E 5.4E 5.5E 5.6C 5.7C 5.8C 5.9 5.10E 5.10E 5.11C 5.11C 5.12C 5.13C 5.14 5.16E 5.17 5.18C 5.19 5.20C 5.20C 5.21C 5.22C 5.22C 5.23E 5.24C 5.25C 5.26C 5.26C 5.27C 5.27C

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5.1

UNJUST ENRICHMENT

‘Good consideration’ — payments to meet a valid obligation Lloyds Bank Plc v Independent Insurance Co Ltd Deutsche Morgan Grenfell Group Plc v Inland Revenue Commissioners Hills Industries Ltd v Australian Financial Services and Leasing Pty Ltd Contradiction of statutory regime Mistakes and Contract Bell v Lever Bros Ltd Non-Monetary Benefits Craven-Ellis v Canons Ltd

5.28C 5.28C 5.29C 5.30C 5.31 5.33 5.37C 5.38 5.39C

INTRODUCTION 5.1 We saw in Chapter 4 that individuals, corporations and public bodies may be entitled to restitution of benefits they have transferred to another when they lacked legal capacity. The law’s succour is not limited to these extreme instances, however. It also provides relief to fully capable individuals, where the autonomy of their decision to confer a benefit has been impaired in a particular case. We consider several such instances in the following chapters of this book. The paradigm example, which forms the focus of the current chapter, is where the benefit is conferred as a result of a mistake of fact or law.

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5.2 In such instances, restitution is justified on the basis that the mistake ‘vitiates’ a plaintiff’s consent and undermines his or her freedom of choice, but the logical implications of that rationale have not always been fully respected. Historically, the law took a restrictive approach to the types of mistake that gave rise to relief. It denied recovery for mistakes of law altogether and limited recovery for mistakes of fact to cases in which the plaintiff thought himself or herself under a legal liability to pay. These limitations were primarily designed to protect the security of receipts and have now been relaxed in the light of the modern perception that concerns about transactional insecurity can be more sensitively accommodated through the recognition of a defence of change of position. The current judicial view is that any mistake which causes a transfer is sufficient to make out a prima facie case, although there is some residual uncertainty surrounding cases involving mistaken gifts. Restitution on grounds of mistake has historically been available both at law and in equity. 5.3 The relaxation of the categories of restitution-yielding mistake has focused recent attention on a new set of questions which were previously hidden. These include the issue of what it means to be mistaken and how the pivotal question of causation should be determined. The issue of how to set reasonable boundaries on recovery also persists. Mistakes are extremely common, not simply because our information is practically limited, but also because human rationality itself is bounded — our cognition is subject to constant distraction from the truth. It is not yet clear whether the defence of change of position is sufficient to meet concerns about the security of receipts in all circumstances; or that it can set limits on recovery which are determinate enough to maintain general market confidence in transactions. A key contemporary focus is thus on the formulation of clear and appropriate exceptions to recovery which will suffice to meet these sorts of residual concern. The vast majority of successful claims for mistake involve money, for reasons we canvased in Chapter 3, but there are also cases involving the mistaken provision of services and other non-money benefits, such as the discharge of debts. We also consider cases in which mistakes are made, as they often are, in contractual contexts. Here, it is essential for a plaintiff to set aside any contract before restitution can be claimed, in order to avoid any contradiction with the way in which the parties have consensually allocated risk.

146 Barker, K. it. Unjust Enrichment, LexisNexis Butterworths, 2017. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/aut/detail.action?docID=6221436. Created from aut on 2021-05-24 05:07:41.

MISTAKE

5.4E

THE MEANING OF MISTAKE 5.4E P Birks, An Introduction to the Law of Restitution Clarendon, Oxford, 1989, pp 147–8 (some references omitted) The first thing is to make a distinction between mistakes and mispredictions. Suppose I look after you because I think you will leave me money when you die [Deglman v Guaranty Trust Co of Canada [1954] 3 DLR 785] or I do months of work preparing plans for your building in the confident belief that you will give me the contract to clear the site and carry out the development. [William Lacey (Hounslow) Ltd v Davis [1957] 1 WLR 932] These are predictions and, when I find myself disappointed, mispredictions. I may call them mistakes, but they are a kind of mistake which does not count. … A claim for restitution cannot be founded on a misprediction. … The mispredictor still has to bear the risk he ran. The reason is that restitution for mistake rests on the fact that the plaintiff’s judgement was vitiated in the matter of the transfer of wealth to the defendant. A mistake as to the future, a misprediction, does not show that the plaintiff’s judgement was vitiated, only that as things turned out it was incorrectly exercised. A prediction is an exercise of judgement. To act on the basis of a prediction is to accept the risk of disappointment. If you then complain of having been mistaken you are merely asking to be relieved of a risk knowingly run. The safe course for one who does not want to bear the risk of disappointment which is inherent in predictions is to communicate with the recipient of the benefit in advance of finally committing it to him. He can then qualify his intent to give by imposing conditions, or by making a contract, or sometimes by making a trust. That prepares the ground for restitution on the basis not of mistake but failure of consideration …

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Notes and questions 1.

The distinction between mistakes and mispredictions can be difficult to apply. For awkward cases, see Kleinwort Benson Ltd v Lincoln City Council [1999] 2 AC 349; Nurdin & Peacock Plc v DB Ramsden & Co Ltd [1999] 1 WLR 1249; Dextra Bank & Trust Company Limited v Bank of Jamaica [2002] 1 All ER (Comm) 193; Hookway v Racing Victoria Ltd [2005] VSCA 310; Re Griffiths [2009] Ch 162; Priestley v Priestley [2016] NSWSC 1096; and Pitt v Holt [2013] UKSC 26. In the last of these cases, the plaintiff, Mrs Pitt, had received damages for the care of her brain-damaged husband, who had been involved in a serious accident. She made the unfortunate decision, having taken advice from two separate tax advisers, to settle the money on discretionary trust. This decision exposed the funds to inheritance tax when her husband later died, when it would otherwise have accrued to her without any tax liability. In the Court of Appeal, her claim for equitable rescission of the disposition was rejected on the basis that she had merely mispredicted its later tax consequences: [2011] EWCA Civ 197 at [216]–[219]. The Supreme Court, by contrast, concluded that she had made a contemporaneous, mistaken, tacit assumption regarding the legal effect of the arrangement, and granted relief: [2013] UKSC 26 at [133], [142]. Which of these views is the more credible? How workable is the mistake/misprediction distinction in practice?

2.

Some writers argue that the distinction between mistake and misprediction is not simply hard to draw, but objectionable in principle: even mispredictors should be entitled to restitution, provided they did not accept the risk of their prediction being wrong. See D de Jesus, ‘Mistakes and Mispredictions’, ; T Akkouh and C Webb, ‘Mistake, Misprediction and Change of Position’ [2002] 10 RLR 107, pp 108–9; J Edelman and E Bant, Unjust Enrichment (2nd ed, Hart, Oxford, 2016), pp 175–6; cf contra W Seah, ‘Mispredictions, Mistakes and the Law of Unjust Enrichment’ [2007] 15 RLR 93, pp 103–4. Do you agree?

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UNJUST ENRICHMENT

5.4E

3.

As Birks indicates, one who makes a prediction about the future into a clear condition of his or her payment can recover the payment if the prediction turns out to be wrong. The ground of recovery is then failure of the basis on which the payment was made (see Chapter 7). What does this tell one about the viability of the distinction between mistake and misprediction as an arbiter of recovery?

4.

For a recent example of the failure of a case based on the existence of a mere misprediction, see Urusoglu v MSU Management Pty Ltd [2011] NSWCCA 54.

5.5E A Farnsworth, Alleviating Mistakes OUP, Oxford, 2004, pp 19–28, 31–3, 57–8 (some references omitted) What ‘amounts to a mistake’? … In legal usage, mistake ordinarily refers to something that one has in mind, but common speech often gives it a broader meaning. In common speech, mistake may refer not only to something that the mistaken person has in mind but to the resulting decision or the ensuing action as well. On discovering that he had boarded the train for Genoa rather than the one for Turin, Nietzsche might have said of his resulting decision: ‘My deciding to board the train was a mistake.’ Or he might have said of his ensuing action: ‘My boarding that train was a mistake.’ Legal usage does not commonly employ the word in either of these senses: Nietzsche’s mistake was his perception when he boarded the Genoa train instead of the Turin train. … Without a flawed perception, there is no mistake … Even where there is a flawed perception, it has no legal significance as an alleviating mistake if it results in no untoward consequence that calls for alleviation. … A flawed perception is but the first link in a chain of events that leads to an untoward consequence. In a classic case of mistake, one’s flawed perception is significant because it is followed by a faulty decision, as a result of which one takes an ill-advised action with what, absent alleviation, would be an untoward consequence. This is what makes the mistake legally significant. A debtor’s flawed perception that a debt is $300, when it is actually only $200, induces a faulty decision to pay the creditor $300, as result of which the debtor takes the ill-advised action of paying the $300, with the untoward consequence that — absent reversal — the debtor is out an extra $100. …

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The Gap Between Perception and Reality If a mistake is a flawed perception, the flaw reflects a gap between the perception of reality on the one side and reality itself on the other. A mistake as to assumption straddles this gap between perception and reality. As the Supreme Court of Utah expressed it, a mistake is discovered ‘by comparing what was believed to be the fact alongside of the discovered actual fact.’ When Nietzsche boarded the train for Genoa, there was gap between his perception that the train was the one for Turin and the external reality that it was bound for Genoa. … Often a perception is the result of actual contemplation. One can say of a supposed fact, ‘I had that fact in mind at the time.’ If one knowingly paid $300 to a creditor, one probably had it in mind that the debt was $300. We might call this sort of perception an active perception. … Courts have not, however, generally insisted on actual contemplation. One can perceive a fact without consciously addressing it, without having ‘a sentence in the head.’ For most purposes a perception can lie somewhere below the level of consciousness. Although Cardozo J once referred to such a perception as ‘a tacit or implied presupposition in the minds of the contracting parties,’ the perception is not consciously in their minds. As the Restatement (Second) of Contracts explains, ‘The belief need not be an articulated one, and a party may have a belief as to a fact when he merely makes an assumption with respect to it, without being aware of alternatives.’ [Restatement (Second) of Contracts § 151, cmt.a.] … Such a perception that is not explicitly formulated might be called a passive rather than an active perception. … Turning from perception to reality, it might seem that there would be little difficulty in defining the boundaries of reality. But the task is more troublesome than it may appear. I do not address the doubts expressed by some philosophers as to the existence of reality. The ‘correspondence theory of truth,’ expounded by Aristotle, under which ‘a statement is true if it corresponds with reality, false if it does not … is not only taken for granted by commonsense but is also adopted by philosophers who recognize some of its philosophical difficulties.’ Certainly it is taken for granted in legal discourse. Thus the Supreme

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MISTAKE

5.7C

Court of Utah spoke of discovering a mistake ‘by comparing what was believed to be the fact alongside of the discovered actual fact.’ One can be mistaken as to a fact even though, at the time, the truth or falsity of the fact cannot be determined. A scientist may make a mistake that can be detected only years later, after the advancement of scientific knowledge, as in the case of DNA testing. The sixth-century astronomer Ptolemy’s perception that the earth was at the center of the universe was no less a mistake if we assume that the state of scientific knowledge at the time did not permit him to know the truth. … Ignorance and Mistake Ignorance is necessarily implicit in mistake. ‘Every mistake involves ignorance,’ wrote Glanville Williams of criminal law, and William Keener agreed that as to dispositions by transfer ‘mistake always involves ignorance.’ To say that one’s perception is flawed because it does not correspond to reality is to say that one is ignorant of reality. To say that Nietzsche’s perception that the train he boarded was bound for Turin was flawed is to say that he was ignorant of the reality that the train was bound for Genoa. To say that Rip Van Winkle’s perception, on awakening from his 20-year sleep, that he was a ‘loyal subject of the king’ was flawed is to say that he was ignorant of the Revolutionary War. But this does not mean that the opposite is true, that mistake is implicit in ignorance. One who is ignorant of a fact has no perception one way or the other about the relevant reality. If one’s mind is a complete blank as to a fact, one can have no perception as to that fact and cannot be mistaken as to that fact. Sheer ignorance of a fact, so that one cannot call it to mind, cannot be the basis of even a passive perception. Rip Van Winkle was not mistaken as to the Revolutionary war for as to that his mind was complete blank — as to that he had no perception at all. Opinions Although one’s opinion may go to the present rather than the future, it does not involve a perception of reality but rather an evaluation of reality based on inference. … Forming an opinion, like making a prediction, is an exercise in inference as to which one takes the risk of disappointment. As the commentary to the Restatement (Third) of Restitution and Unjust Enrichment explains, subsequent information ‘may reveal a course of action to have been ‘mistaken’ in the sense that one made a poor choice’ but the mere ‘failure to identify a preferable course of action will not invalidate either an agreement or a transfer.’ A distinguished criminal law scholar notes ‘the difference between factual mistakes … and mistakes in ‘identifying one’s most important values,’’ concluding that if [a man] ‘makes mistakes of the latter kind … because of trouble making up his own mind, the mistakes are properly chargeable without qualification, as his own doing and his own responsibility. His ‘mistaken choice’ is still his choice.’ … To the extent that courts have adverted to unsound opinions, they have sensibly distinguished them from mistakes and grouped them with mispredictions.

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Note Rip Van Winkle is a character of fable. He fell asleep for 20 years, during the course of which the American Revolution took place. On waking, he found himself in trouble when he unwittingly declared his allegiance to King George III. 5.6C David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 at 369 (HCA) Mason CJ, Deane, Toohey, Gaudron and McHugh JJ: As Winfield makes clear, mistake not only signifies a positive belief in the existence of something which does not exist but also may include ‘sheer ignorance of something relevant to the transaction in hand’ [‘Mistake of Law’ (1943) 59 LQR 327, p 327].

5.7C Kleinwort Benson Ltd v Lincoln City Council [1999] 2 AC 349 at 409–10 (HL) Lord Hope: Nor is there any essential difference as between fact and law in regard to the payer’s state of mind. This may vary from one of complete ignorance to a state of ample knowledge but a misapplication of what is known to the facts. The mistake may have been caused by a failure to take advice, by omitting (continued)

149 Barker, K. it. Unjust Enrichment, LexisNexis Butterworths, 2017. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/aut/detail.action?docID=6221436. Created from aut on 2021-05-24 05:07:41.

5.7C

UNJUST ENRICHMENT

to examine the available information or by misunderstanding the information which has been obtained. Or it may have been due to a failure to predict correctly how the court would determine issues which were unresolved at the time of the payment, or even to foresee that there was an issue which would have to be resolved by the court. As Mason CJ said in the David Securities case, at p 374, the concept of mistake includes cases of sheer ignorance as well as of positive but incorrect belief.

5.8C Pitt v Holt [2013] UKSC 26 at [104]–[105], [108] For the facts, see note 1 to 5.4E. The plaintiff was found to have made a mistaken tacit assumption regarding the legal effect of her disposition. Lord Walker (Lords Neuberger, Mance, Clarke, Sumption, Carnworth and Baroness Hale agreeing): [104] For present purposes a mis...