MISTAKES AND MISPREDICTIONS

INTRODUCTION

Suppose company A paid money to company B mistakenly believing it to be for a loan. Company B received the money mistakenly believing it came from company C to discharge its pre-existing debt. Ordinarily, company A should obtain full restitution of its money from company B as the money was incapable of discharging the debt.1 Does this result change if, instead of company A, itself, paying the money to company B, it completes the transaction through an agent. Agency rules suggest that the result should be unchanged.2 However, in Dextra Bank & Trust Co Ltd v Bank of Jamaica3 (“Dextra”), this factor proved decisive. Instead of finding that the principal had paid under a mistake of fact, they found it had acted under a misprediction as to the actions of its agent and accordingly were unable to recover their misappropriated money.

This paper evaluates the Privy Council’s reasoning by looking at the distinction drawn between mistakes of present fact (“mistakes proper”) and mistakes of future fact (“mispredictions”) and why the former but not the latter is actionable in restitution. I will argue that this distinction cannot be logically or theoretically made without leading to inconsistency.

In Part I, I will examine the nature of mistakes proper and mispredictions. Using probability theory, I will demonstrate that the distinction cannot be made rationally. The distinction is not logical, as it purports to be, because on virtually every factual scenario that exhibits a misprediction, there also exists a mistake proper. Hence, misprediction is an unprincipled limit on recovery. I submit, instead, an alternative limitation based on knowledge of risk. In Part II, I will look to whether there is a philosophical justification of the purported distinction. I will seek to show that there is no normative reason for denying restitution for mispredictions per se, based on philosophical considerations. In Part III, I will look at the mechanics of the knowledge of risk defence and tackle some of the concerns that afflict restitution for misprediction.

I. LOGICAL CONCEPTION OF MISTAKE

A. Current Approach to Mispredictions

Restitution is granted for mistake because the plaintiff’s subjective consent to the transfer is defective.4 Had the plaintiff known the truth of the matter, it would not have made the transfer. On the other hand, Professor Birks reasons that mispredictions, as a subset of mistakes, cannot give rise to restitution. This is because, he argues, it depends on a plaintiff’s belief being falsified by a future event 1 Colonial Bank v Exchange Bank of Yarmouth (1885) 11 App Cas 85. This reasoning is consistent with the decision in Barclays Bank Ltd v WJ Simms, Sons and Cooke [1980] QB 677, where the defendant believed the money was for the purpose of discharging another’s debt. Cf Australia and New Zealand Banking Group Ltd v Westpac Banking Corp (1988) 164 CLR 662, but distinguishable by the fact that the defendant bank was acting merely as agent between the plaintiff bank and the insolvent company. Consider also Justice D H Van Zyl, “Unauthorised Payment and Unjust Enrichment in Banking Law” in F Rose (ed), Restitution and Banking Law (1998), 1.2 Consider Anglo-Scottish Beet Sugar Corp v Spalding UDC [1937] 2 KB 607.3 (Unreported, Privy Council, Lord Bingham, Lord Goff, Lord Hobhouse, Nourse, Russell LJJ, 26 November 2001).4 Ross Grantham and Charles Rickett, “On the Subsidiarity of Unjust Enrichment” (2001) 117 Law Quarterly Report 273, 274.

which means, at the time of the transfer, the plaintiff could not have been operating under a relevant mistake.5 He gives two examples based on the facts of Deglman v Guaranty Trust Co of Canada6 (“Deglman”) and William Lacey (Hounslow) Ltd v Davis7 (“William Lacey”). He argues that where I confer a benefit to you mistakenly believing that you will leave me money before I die (Deglman) or I prepare plans in the belief that you will give me a contract (William Lacey) the risk of these kinds of mistakes must fall on me because I am not acting under any incorrect data, but mere that things did not turn out as I hoped.

Despite the overwhelming acceptance of this analysis by restitution commentators,8 this paper challenges this approach. I will argue that it is not the temporal nature of the mistake that precludes restitution but knowledge of risk which ordinarily, but not always, follows mispredictions. The difference is important because if the latter is accepted, there will be some instances where a misprediction will support a restitutionary claim.

B. Problems with the Current Approach

The first step to understand why Professor Birks’ reasoning may be erroneous is to consider why the examples of Deglman and William Lacey are misleading. These cases ought to be denied restitution but for reasons other than the temporal nature of the mistake. Birks’ understanding of Deglman supposes that a plaintiff subjectively knows of the possibility that he or she would not be a beneficiary in a will because of the mere temporal difference between the transferred payment and the time of your death, which conclusively determined the plaintiff’s rights to the estate.9 However, knowing the risk of uncertainty and the temporal difference between the transfer and event giving rise to falsification of belief do not always go hand in hand. This is demonstrated by the controversy regarding mistakes of law in the decision of Kleinwort Benson Ltd v Lincoln City Council & Ors10 (“Kleinwort Benson”).

In Kleinwort Benson, the House of Lords allowed restitution for payments made pursuant to a swaps arrangement that was subsequently found to be void. The swaps arrangement was completed by the time Hazell v London Borough of Hammersmith and Fulham11 (“Hazell”) held that the local councils were acting ultra vires by entering into the swaps contracts. The court allowed restitution even though, when making the payments, Kleinwort Benson may have been acting upon a settled misunderstanding of law that the swaps contracts were intra vires. A more thorough analysis of this case is taken later in this Part, but for now, it is enough to note that Kleinwort Benson did not consider the possibility a case such as Hazell would come along. There was no mere hope that a decision in Hazell would come along, for it was never considered.

Birks understanding of William Lacey is also misleading. There is merit in preventing restitution for unrequested work, but the reason is not the temporal nature of the mistake but rather because there is a question of whether the defendant has been enriched at all (due to subjective devaluation).

5 Peter Birks, Introduction to the Law of Restitution (1985), 147-148.6 [1954] 3 DLR 785.7 [1957] 1 WLR 932.8 Birks, Introduction to the Law of Restitution, above n Error: Reference source not found, 147-148; Gerard McMeel, The Modern Law of Restitution (2000), 43; Andrew Tettenborn, Law of Restitution in England and Ireland (2nd Ed, 2000), 59-60; Graham Virgo, The Principles of the Law of Restitution (1999), 140-141; Andrew Burrows, The Law of Restitution (1993), 98.9 A persons rights to a testator’s estate only crystallises on the testator’s death.10 [1998] 3 WLR 1095.11 [1992] 2 AC 1.

C. A Logical Approach: Probability and Mispredictions

The reason why it is unwise to distinguish between mistakes proper and mispredictions is because of the impossibility of demarcating between the two on a given factual matrix. This difficulty arises because of the illogical nature of treating a payment having been paid under either a mistake or a misprediction. An understanding of probability is needed to show this, the concept important to mispredictions because it is the key to whether a prediction does not hold true.

The concept of probability existed as early as the Ancient Greek and Roman empires when merchants realised that they could hedge their losses by loading their wares onto different ships, spreading the risk. However, attempts at a unified theory of probability began in 1654 when Pascal and Fermat began corresponding on the subject.12 Although numerous theories have been made, they can be classed broadly into two non-conflicting theories of probability,13 which Stephen Perry describes as objective probability and epistemic probability.

I. Objective Probability

Objective probability is the theory that probability is some kind of empirical fact about the state of the world. It is an empirical formulation that relies on the semantical relationship between a hypothesis and the corresponding observed events. For example, if I throw a coin 500 times, the probability of heads being 0.5 is an observable fact of the state of the world. This concept can be understood by regarding probability as the objective relationship between two propositions. In our example, the propositions are (1) the number of tosses of a coin, and (2) the number of favourable outcomes. The relationship is the frequency of proposition 2 relative to the frequency of proposition 1. Crucial to this theory is the use of empirical information to reach objectively defined conclusions. Because of this, objective probability theory is useless for the purpose of this essay in that empirical information is relevant in determining an objective person’s state of mid but does not explain the subjective state of mind, which has been acknowledged as the focus of unjust enrichment.14

II. Epistemic Probability

Epistemic probability, on the other hand, is particularly pertinent to the thesis of this paper. It is commonly referred to as the classical conception and is premised on a person’s incomplete knowledge of the state of the world. John Stuart Mill’s idea that the cause of a particular outcome is the sum of all the conditions which are necessary to produce it pervades this theory.15 All outcomes are considered completely deterministic. To illustrate, consider our fair coin toss example. This theory holds that the probability of heads is 0.5 is not because of some objective measurement such as relative frequency but rather due to the incomplete knowledge of the state of the world preventing us from narrowing down proposition 1 such that the corresponding event is certain. Incomplete information regarding the relevant atmospheric pressure, gravitational forces, initial trajectory and other causal matters prevents the causal class of event to be defined more narrowly to give a certain

12 Ian Hacking, The Emergence of Probability (1975), 11; Roy Weatherford, Philosophical Foundations of Probability Theory (1982), 21.13 Rudolf Carnap, Logical Foundations of Probability (1950), 19-36; Hacking above n Error: Reference source not found, 11-17.14 Grantham and Rickett, above n Error: Reference source not found, 274.15 Quoted in National Insurance Co of New Zealand v Espagne (1961) 105 CLR 569, 591, per Windeyer J.

consequence. Nonetheless, the outcome of the coin toss can be described by a finite algorithm and thus if that finite algorithm is used as proposition 1, then its relationship to proposition 2 is certain.

This theory demonstrates that logically, a person will always have a mistake of present fact whenever a misprediction (unfavourable outcome) is made. This is because a person virtually never has complete information as to the state of the world when making a decision.16 In a logical world, a person cannot have complete knowledge and draw the wrong conclusion. He at least has made a mistake of law as to the legal interpretation of the facts.17

The problem caused by the ability to reanalyse a set of facts is not new. Burrows recognised that courts reanalysed mistakes of law into mistakes of fact to avoid the harshness of the mistake of law bar.18 In George (Porky) Jacobs Enterprises Ltd v City of Regina19, a town by-law prescribed a fee to be paid whenever a boxing or wrestling exhibition is to be held in the city. Originally the fee prescribed was $25 per day. However on two subsequent amendments to this fee, the word “per day” was omitted, presumably because of an oversight. A default provision in the by-law specified that unless the mentioned licence was for a shorter period, all fees quoted were annual fees. Thus the plain meaning of the by-law was that the prescribed fee was an annual fee. The appellant paid money to the city amounts referable to a daily as opposed to annual fee. At trial, the respondent did not contest the correct construction of the by-law and instead relied on the submission that the money was paid pursuant to a mistake of law and therefore barred from restitution. Hall J rejected this submission and held that the mistake was one of fact, namely the existence of a “per day fee”. To avoid misrepresenting his Honour on what is a fine distinction, I repeat what he said:

Interpretation of the amending By-laws … was never in question in the action. These By-laws never purported to stipulate a per day fee. There was no mistake of either fact or law in respect of what the By-laws actually said. The mutual mistake of fact here was as to the existence of one or more by-laws calling for a licence on a per day basis. Both the licence inspector and Jacobs believed that such By-laws existed but they did not actually exist at all so the mistake is one as to fact of the existence of the by-laws and not one of interpretation of by-laws that in any way purported to stipulate a per day fee.20

His Honour was of the opinion that that the distinction between fact and law was not difficult in this case. I respectfully disagree. The traditional distinction between fact and law is that mistakes of law are interpretative errors as to the consequence of laws whereas mistakes of fact are errors to actual events, things or states of affairs. Indeed this is the form of interpretation that Hall J uses. However, his Honour emphasised the mistake of fact, namely the existence of a per-day fee by-law, at the expense of the mistake of law as to the interpretation of the amended by-law. By characterising the existence of a law as a mistake of fact, it logically follows that every mistake of law will have a corresponding mistake of fact.

Such a reanalysis occurs with mispredictions. In Kerrison v Glyn, Mills, Currie & Co21, the plaintiff had been able to recover money paid to a bankrupt bank, even though it was paid in the belief that the bank would become liable to the plaintiff in the future. By characterising the mistake as to the creditworthiness of the plaintiff, the 16 Given that ignorance of a fact at hand is considered a mistake – P H Winfield, “Mistake of Law” (1943) 59 Law Quarterly Review 327, 327.17 Bilbie v Lumley (1802) 2 East 469.18 Burrows, Introduction to the Law of Restitution, above n Error: Reference source not found, 115-116.19 (1964) 44 DLR (2d) 179.20 Ibid, 182.21 (1911) 81 LJKB 465.

court was able to find a present mistake to grant restitution. Burrows is correct in observing that this power of reclassification will result in inconsistent findings on similar facts.

D. Alternative Approach: Apprehension of Risk

The consequence of this epistemic understanding of the nature of predictions is that virtually every time a person makes a misprediction they also commit a mistake proper. However, common sense tells us, that not everyone who makes a prediction should also be granted restitution, for it would cause too much uncertainty in the world of transactions. The crucial question is therefore, whether there is an alternative limit to restitution which is logically consistent and provides a just outcome. It is argued here that the method of demarcating between restitution yielding and non-yielding mispredictions is by the subjective knowledge of the uncertainty of the transfer. In this way mispredictions can be divided into two categories: (1) future mistakes where the transferor knows the future event is uncertain and (2) future mistakes where the transferor does not consider the uncertainty. Only the latter attracts restitution. Thus restitution for mistake is not limited by the temporal nature of the mistake but rather upon the apprehension of risk by the transferor. This defence will be elaborated upon in Part III.

E. The Trigger for Restitution

If knowledge of risk is the limiting factor for restitution, the question remains whether it is the mistake to the future or present fact that triggers the restitutionary response. Practically, either the future mistake or the present mistake can trigger restitution. The present mistake triggering restitution presents no difficulties as the law presently recognises restitution for this category. In respect to future mistakes, it is argued here that the future mistakes itself, will trigger restitution. There is no need to search for a present mistake in order to attract restitution. The fact that these present mistakes cannot be ascertained on the evidence or that the plaintiff cannot specifically find such a present mistake should not limit recovery on restitution. As long as the plaintiff is relevantly impaired, ie did not understand the risks of transfer, restitution should follow. Intuitively, in Kleinwort Benson,22 the plaintiff was mistaken irrespective of whether the law could be precisely defined at the time of the transfer. It is inconsistent with the principle of unjust enrichment, if restitution is dependent on a judicial finding of the state of the law at the time of the payment for such a requirement is wholly unconnected to the plaintiff’s state of mind at the time of the transfer.

It can be argued that a more complex test for causation beyond the ‘but for’ test as is applied in contract and tort is unnecessary for mistake. This is because in those causes of action, causation plays a crucial role in attributing fault,23 whereas in mistake, fault is not an essential element to the cause of action and its attribution is not the aim of the inquiry. However to counter this argument, there may need to be some other factor limiting the kinds of mistakes entitled to restitution. One could argue that mistakes, which ore objectively irrelevant but nonetheless causally connected (using the 'but for’ test) should not be actionable in restitution. For example, where a person who makes a gift to an environmental organisation only to subsequently discover that a high school enemy works for that organisation. Arguably, such a person should not be entitled to restitution.

22 [1998] 3 WLR 1095.23 Consider Prue Vines, “Fault, Responsibility and Negligence in the High Court of Australia” (2000) 8 Torts Law Review 130; Justice K Mason, “Fault, Causation and Responsibility: Is tort law just an instrument of corrective justice?” (2000) 19 Australian Bar Review 201.

In any event, this paper does not enter into this debate, except to the extent that the temporal nature of the mistake is a causal limit to restitution. As is evident in the above example, such difficult cases affect mistakes proper and mispredictions equally.

F. Kleinwort Benson Ltd v Lincoln City Council & Ors 24

This decision is a perfect example of where Professor Birks’ distinction between mistakes and mispredictions has caused unnecessary difficulty. The Law Lords were split 3-2 on whether Kleinwort Benson should have been entitled to restitution. The minority judges, Lord Browne-Wilkinson and Lord Lloyd, claimed there was no mistake for they were acting under a settled understanding of the law at the time of the payments. They clearly accepted that all the plaintiffs were acting upon was a misprediction and therefore ineligible for restitution. The majority, Lord Goff, Lord Hope and Lord Hoffman, however, allowed restitution for the mistake because a person can be retrospectively mistaken. Graham Virgo took this to mean that mistakes of law are merely an exception to the rule denying restitution for misprediction.25 Professor Birks has been very critical of this view and has searched for another principle for why restitution should be granted in this case.26 It is argued here, that the characterisation as a mistake proper rather than a misprediction need not matter.

If we accept the Dworkinian theory of the law,27 there is no problem in finding a relevant mistake of law. The decision in Hazell28 merely enlightened us to the true state of the law, meaning we were mistaken about a present fact. However, even if we view Hazell29 as changing the law, we can still consider Kleinwort Benson was relevantly mistaken and not by retrospectivity as Lord Goff reluctantly held.30

Kleinwort Benson was presently mistaken about at least some of the causal conditions that led to the subsequent change in law. The mistake could have been, for example, as to the state of mind of the judges in Hazell31 regarding local authority powers for, as Bowen LJ once wrote, ‘the state of a man’s mind is as much a fact as the state of his digestion’32. It could even be the events that helped form their views, perhaps, for example, certain local council abuses that provoked their ire. It need not matter that these facts were virtually unascertainable by the plaintiff. It would be odd in principle, that restitution be available where the plaintiff was careless but not where they were prudent but the possibility of discovering the mistake was impossible.33

A misprediction is evidence of a mistake proper. Thie difficulty in proving or finding the underlying mistake proper should not preclude restitution. Professor Birks quotes Bowen LJ to show the importance of reanalysis, arguing that there is a huge difference between on one hand disappointments when the future turns out bad and 24 [1998] 3 WLR 1095.25 Virgo, above n Error: Reference source not found, 141.26 Peter Birks, “Mistakes of Law” (2000) 53 Current Legal Problems 205, 226-229; Peter Birks, “The Law of Restitution at the End of an Epoch” (1999) 28 University of Western Australia Law Review 13, 30-49.27 Ronald Dworkin, Law’s Empire (1986), especially 238-258. Cf Lord Goff in Kleinwort Benson [1998] 3 WLR 1095.28 [1992] 2 AC 1.29 Ibid.30 Kleinwort Benson [1998] 3 WLR 1095, 1119. Lord Hope and Lord Hoffmann held that a person can be retrospectively mistaken but differed slightly to Lord Goff by not characterising this approach as a fiction.31 [1992] 2 AC 1.32 Edgington v Fitzmaurice (1885) 29 Ch D 459, 483.33 See Sonja Meier and Reinhard Zimmermann, “Judicial Development of the Law, Error Iuris and the Law of Unjustified Enrichment – A view from Germany” (1999) 115 Law Quarterly Review 556, 560.

disappointments due to a mistake of present fact.34 However, it is the very fact that such reanalysis is available, logically, to all mispredictions that renders the distinction as an arbitrary limit. Lord Hoffmann and Lord Hope were inclined to grant Kleinwort Benson restitution but were at pains to accept the declaratory theory of the law in order to justify a present mistake. They need not have. All that was required was that the plaintiff’s considered the law certain and had not adverted their minds to the possibility that the councils did not have authority, thus avoiding the knowledge of risk defence. Clearly, this defence needs further elucidation, but first I need to dispose of the implied notion that there is no moral imperative for restitution for misprediction.

II. PHILOSOPHICAL CONCEPTION OF MISTAKE

There have been various attempts to elucidate why we grant restitution for unjust enrichment. Attempts to find out why we grant restitution inevitably lead to the conclusion that it is dependent essentially on a normative judgment of what is considered a fair response to a flawed transaction. Gergen says that restitution for unjust enrichment stems from ‘human unhappiness over the role of chance in our lives, discomfort with change, the instinct of possession, dislike of human cunning, and perhaps, just a touch of envy’35. It is perhaps impossible to explain unjust enrichment at a lower substratum and encapsulate what our “sense of justice”36 is in any meaningful way.

This is perhaps why John Dawson heavily criticised the American Restatement37 for formulating rigid principle as to the circumstances that attract restitution.38 He said that we must always be mindful of our “sense of justice” because failure to do so will result in ‘that well-known ailment of lawyers, a hardening of categories’39. The comments made by Birks regarding the dichotomy between mistakes proper and mispredictions have solidified causing unnecessary uncertainty and confusion resulting in inconsistent results. Although perhaps artificial and incomplete, I will now turn to political and economic theory to justify departure from Birks’ rule against mispredictions.

A. Economic Efficiency

Beatson and Bishop,40 justify unjust enrichment on the basis that it balances competing social costs borne by the plaintiff and the defendant in mistaken transactions. These costs are the plaintiff’s costs of ensuring there is no mistake (“precautionary costs”) and the defendant’s costs when acting upon security of receipt (“reliance costs”). By affording restitution for mistakes, subject to a change of position defence, the plaintiff’s costs of taking precaution are minimised without

34 Birks, “Mistakes of Law”, above n Error: Reference source not found, 227; Birks, “The Law of Restitution at the End of an Epoch” above n Error: Reference source not found, 44.35 Mark Gergen, “What Renders Enrichment Unjust?” (2001) 79 Texas Law Review 1927, 1929.36 John Dawson, Unjust Enrichment: A Comparative Analysis (1951), 151.37 American Law Institute, Restatement of the Law of Restitution: Quasi-contract and Constructive Trusts (1937).38 Dawson, Unjust Enrichment: A Comparative Analysis, above n Error: Reference source not found.39 John Dawson, “Restitution or Damages?” (1959) 20 Ohio State Law Journal 175, 187, quoted in Gergen, above n Error: Reference source not found, 1928.40 Jack Beatson and William Bishop, “Mistaken Payments in the Law of Restitution” reprinted in Jack Beatson (ed), The Use and Abuse of Unjust Enrichment (1991), 137.

increasing the defendant’s reliance costs.41 Enrichment is measured in the hands of the defendant, and restitution by subtraction of the defendant’s benefit does not cause reliance costs.

If this were the sole purpose of restitution for mistake, there seems to be no economic efficiency reason why the costs of taking precaution of present mistakes but not future mistakes should be minimised. Insofar as the defendant continues to benefit from the transfer, he should afford the plaintiff restitution irrespective of the temporal nature of the plaintiff’s mistake. In Dextra42, Dextra’s costs of ensuring that its agent would execute the promissory note is no less of a precautionary cost as double-checking the correctness of accounts before paying them.

Recently Hanoch Dagan argued that reliance costs are not the only costs that a recipient of money bears when they mistakenly receive money.43 Expectation costs, although difficult to quantify, should not be discounted as insignificant. These costs refer to the defendants’ interest in knowing the correctness of their wealth. The cost is particularly important where there is a long period of time between the transfer and the demand for restitution. The courts have dealt with this cost by extending the change of position defence beyond pure reliance costs to other reliance costs that are not referable to any particular expenditure.44 This must be the correct approach. When dealing with a defendant-sided cost, it is appropriate to grant a defendant-sided defence, such as a broader change of position defence, rather than a more restrictive plaintiff-sided limitation such as denying restitution for misprediction.

The economic efficiency theory justifies restitution further than mistake. Even when a person is not mistaken, economic efficiency theory would allow restitution so long as the plaintiff did not subsequently want the defendant to retain the benefit of the transfer because of the occurrence of a perceived event. The cost of making a known uncertainty a certainty is just as much a cost of ensuring an unknown uncertainty a certainty. Such an approach is more closely akin to the civil law approach where nullity of a valid causa attracts automatic restitution.45 There is no need to find an unjust factor which the common law purports to require. Arguably this is not the position at common law.46 Broadly, for restitution to be granted, one needs to show that the plaintiff has an impaired intent at the time of the transfer or that he or she qualified that transfer on some communicated basis.47 It is quite a big step to abandon these additional common law requirements, though regard strictly to

41 Indeed Beatson and Bishop argue for more restitution to be given by weakening the change of position defence. They argue that a person who has changed their position has benefitted by so changing even though such benefit is difficult to quantify.42 (Unreported, Privy Council, Lord Bingham, Lord Goff, Lord Hobhouse, Nourse, Rusell LJJ, 26 November 2001).43 Hanoch Dagan, “Mistakes” (2001) 79 Texas Law Review 1795, 1804.44 Phillip Collins Ltd v Davis [2000] 3 All ER 808.45 Although civilian actions, such as condictio indebiti (claim in respect of something not owed) and solutio indebiti (payment or performance of something not owed) arguably require more than mere lack of cause, there is a residual action, condictio sine causa (recovery on no specific ground) which captures cases of enrichment without cause not caught by the standard forms of condictio. The effect of this is a broad “without cause” restitutionary response – See Andrew Borkowski, Textbook on Roman Law (1994), 299-300. See also Birks, “Mistakes of Law”, above n Error: Reference source not found, 230-232, although he arrives at the same conclusion differently.46 There has been suggestion that Hobhouse J’s approach in Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1994] 4 All ER 890, 924-930, requiring only “absence of consideration” in order to attract restitution shifts the test more in line with the civilian approach. This was neither accepted nor repudiated when the case proceeded to the House of Lords – [1996] AC 669.47 There are other reasons, which Birks’ categorises in the miscellaneous “policy motivation” – Birks, “The Law of Restitution at the End of an Epoch”, above n Error: Reference source not found, 26.

economic efficiency advocates this. There are, perhaps, moral reasons why a person is not entitled to restitution where transfer is conditional but uncommunicated. It guards against human cunning by preventing riskless speculation.48

Nonetheless, to deny restitution for a misprediction, where the plaintiff does not know of the uncertainty, cannot be justified on economic efficiency grounds nor the desire to deter human cunning. Not only is denying restitution for misprediction economically inefficient, but where a person does not apprehend the future event as uncertain it does not guard against human cunning for there is no intent to benefit from riskless speculation.

B. Corrective Justice

Lionel Smith extends Ernest Weinrib’s theory of corrective justice which purports to explain the law of private obligations.49 Corrective justice is a concept originally expressed by Aristotle to describe the idea that the law’s aim is to correct wrongful conduct. The remedial aim of private law is to place society back to the antecedent state of affairs prior to the wrong. Weinrib’s theory applies corrective justice with a normative content of Kantian Right, which is focused on freedom and its protection.50 Rights, by their nature, are a hindrance of another’s freedom. Professor Hohfeld explained this when he described the jural correlative of right as duty.51 Thus, for a right to be legitimate, it must protect a greater freedom.

[I]f a certain use of freedom is itself a hindrance to freedom in accordance with universal laws, coercion that is opposed to this is consistent with freedom in accordance with universal laws, that is, it is a right.52

In his book, Weinrib explains the function of private law, which aims to encapsulate the whole gamut of private law, such as tort and contract. There are two broad purposes for Weinrib’s work, but only one pertinent to this paper.53 That is to show that private law is concerned with normative transfers rather than material transfers. This explains gain-based damages for wrongs,54 but it also explains why in some cases, not all losses are compensated.55 It is the commission of the wrong that attracts the need for corrective justice, it need not matter that a party has suffered no 48 Although the possibility of change of position means the speculation is not entirely riskless.49 Lionel Smith, “Restitution: The Heart of Corrective Justice” (2001) 79 Texas Law Review 2115; Ernest Weinrib, The Idea of Private Law (1995).50 Kant’s doctrine of Right must be distinguished from his doctrine of virtue. Virtue is subjective in nature and is ascribed absolute freedom. That is one cannot coerce another’s beliefs or values – See Richard Wright, “Wright, Justice and Tort Law”, in David Owen (ed) Philosophical Foundations of Tort Law (1995), 159, 164.51 Wesley Hohfeld, “Fundamental Legal Conceptions as Applied in Judicial Reasoning” (1913) 23 Yale Law Journal 16.52 Immanuel Kant, The Metaphysics of Morals, (Mary Gregor trans, 1991 ed) quoted in Wright, above n Error: Reference source not found, 164.53 The other purpose is to demonstrate that private law is concerned strictly with determining the rights between the plaintiff and defendant only and is not subject to external considerations. He is critical of instrumentalist theories of the law such as economic efficiency and pluralistic theories that combine both corrective justice and distributive justice. Cf Izhak Englard, “The Idea of Complementarity as a Philosophical Basis for Pluralism in Tort Law” in Owen (ed), above n Error: Reference source not found, 183.54 Where damages are assessed greater than that required for compensation. At common law, consider Penarth Dock v Pounds [1963] 1 LI LR 359; Whitham v Westminster Bymbo Coal and Coke [1896] 2 Ch 538; Attorney-General v Blake [2001] 1 AC 268. At equity, consider Boardman v Phipps [1967] 2 AC 46; Reading v Attorney-General [1951] AC 507.55 There may be limiting factors. Consider Malec v JC Hutton Pty Ltd (1990) 169 CLR 638; Poseidon Ltd v Adelaide Petroleum NL (1991) 105 ALR 25; Overseas Tankship (UK) Ltd v Mort’s Dock & Engineering Co Ltd (Wagon Mound No 1) [1961] AC 388.

loss (eg account of profits) or too much loss (eg contributory negligence, remoteness) when compared with the remedial response.

The problem with applying this theory on mistakes is the absence of the wrong in autonomous unjust enrichment.56 Unjust enrichment reverses material transfers in the absence of normative transfers. Lionel Smith overcomes this difficulty by going back to the primary objective of unjust enrichment, namely the reversal of enrichments. Pomponius’ normative statement illustrates this purpose when he stated: ‘For this by nature is equitable, that no one be made richer through another’s loss’.57 It is the desire to prevent a windfall by the defendant through the plaintiff’s loss that triggers the need for corrective justice. Thus, in unjust enrichment, the Kantian Right that needs to be corrected is not the commission of a wrong, but rather the unjust enrichment of the defendant. Unjust enrichment is an infringement of a Kantian Right because it impacts on the plaintiff’s freedom to quiet enjoyment of his or her property and to deal with it without misapprehension. The only possible competing freedom is the defendant’s freedom of security of receipt. Because the defendant’s freedom is dependent upon reliance, insofar as the defendant has not changed his or her position, the plaintiff’s freedom does not infringe the defendant’s freedom, thus attracting the intervention of the law to restore the antecedent state of affairs.

Application of the corrective justice theory on mistakes discloses no normative reason to deny restitution for mispredictions. Arguably, there may be no infringement on the plaintiff’s freedom if he or she understood that the transfer was uncertain. Understanding of risk negates the ignorance of present facts and does not infringe the plaintiff’s freedom. This is because dealing with his or her property in the face of apprehended risk is not an infringement of the plaintiff’s quiet enjoyment, for the dealing was made with full knowledge.

However, where a plaintiff committing a mistake does not apprehend the uncertainty of the transfer, whether it be as a result of a mistake proper or misprediction, the plaintiff’s freedom is infringed. He or she would be ignorant of some fact which would have changed his or her decision. Provided consideration has been given to any change of position, there is no competing defendant freedom that would prevent the need for restitution to be granted. Lionel Smith’s corrective justice theory demands that there be restitution for at least these kinds of mispredictions.

III. KNOWLEDGE OF RISK: ALTERNATIVE LIMIT TO MISTAKE

A. Knowledge of Risk

The foregoing discussion demonstrates that it is unintelligible to limit restitution by the temporal nature of the mistake, on logical and philosophical grounds. However, it also transpires that there may need to be some limit that needs to be imposed on restitution for misprediction. This paper submits a knowledge of risk as the appropriate limit. This is not altogether a novel approach. It borrows much of its content from the honest submission to claim defence proposed by Lord Goff in Barclays Bank Ltd v WJ Simms, Sons and Cooke58 and Stoljar’s analysis into whether there is a material difference between misrepresentations of existing and future facts.59

56 Peter Birks, “The Concept of a Civil Wrong” in Owen (ed), above n Error: Reference source not found, 31, 48-49.57 Quoted in Dawson, Unjust Enrichment: A Comparative Analysis, above n Error: Reference source not found, 3.58 [1980] QB 677, 695.59 Samuel Stoljar, Mistake and Misrepresentation: A Study in Contractual Principles (1968), 87-90.

The honest submission of claim defence operates by preventing restitution where a person makes payment even though he or she knows the possibility of mistake of a specific fact or the operation of a particular law. It is a defence because either the plaintiffs have “waived” the possibility that they are mistaken or that by considering the risk they in fact were not mistaken. The defence does not operate where the plaintiff makes payment because of compulsion or undue influence, for presence of such factors, negates a person’s ability to make a decision even with complete knowledge of the facts.60 Having such a defence negates the need for the limit expressed by Parke B in Kelly v Solari61 which required the mistake be to a specific fact or positive misapprehension. Thus sheer ignorance of a fact at hand should afford restitution in the absence of an honest submission defence whether the case is described as a misprediction or mistake proper case.

Stoljar’s analysis of misrepresentations uses the same kind of reasoning. He argues that whether the misrepresentation has a present or future element is immaterial. Where I misrepresent as to future profits, there is no need to reanalyse the misrepresentation as being made upon the present profit-making ability of the firm to make it actionable. What is important is whether the misrepresentation is really a misrepresentation or rather, a mere puff or opinion. If the latter is the case, such a representation cannot be actionable because there is no “misdescription” but merely an opinion of some event. Reliance on such a representation would be at the plaintiff’s risk since, objectively, the representation was not intended to be relied on, its truth not having been warranted. Similarly a prediction, where the uncertainty is evident, is an indicator that the transferor’s lack of information did not impair the transferor’s mind when making the transfer.

The knowledge of risk defence operates to negative a plaintiff’s claim that he or she was ignorant of the future consequence of the transfer, in the same way the honest submission to claim defence operates in respect to present mistakes. Whether or not the misprediction is reanalysed as a mistake proper is inconsequential, for the result will be the same, a mistake proper is limited by the honest submission to claim defence and a misprediction by the knowledge of risk.

The terminology of knowledge of risk is used as opposed to acceptance of risk because it illustrates the fact that in most cases, simple knowledge of the uncertainty of the transfer is enough to negative a claim for restitution. However, this is not to say there are situations where simple knowledge is enough to prove the defence. Arrowsmith is right in preferring the “waiver” approach rather than the “no mistake” approach because it gives the defence more flexibility to deal with the variety of factual scenarios.62 The “waiver” approach looks at the honest submission to claim defence as operating to waive a person’s mistake whereas the “no mistake” approach considers that no mistake was made, for where one knows there is risk one cannot be mistaken. The “waiver” approach should be preferred because of its flexibility. For instance, there may be situations where the payer is under a duty to know the correct facts or the state of the law. Simply because the payer was uncertain should not be enough to prevent restitution because there is some element of obligation upon the payer to act in a particular manner in such cases.63

B. Objective or Subjective Knowledge of Risk

60 David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353, 394-399 and 373-374.61 (1841) 152 ER 24, 26.62 Sue Arrowsmith, “Submission to an Honest Claim” in Andrew Burrows (ed), Essays on the Law of Restitution (1991), 17, 33-34.63 See also Burrows, Introduction to the Law of Restitution, above n Error: Reference source not found, 102, where he approaches the problem with the point of view that it is the degree of doubt which limits the honest submission of the defence rather than the degree of obligation to make the payment.

There are two possible approaches in determining whether a person has knowledge of risk of a transfer. One approach is the objective approach, where the inquiry is whether a reasonable person, on the facts of a particular case, would have accepted the risk of the transfer. The other approach is the subjective approach, the inquiry being directed to whether the plaintiff, himself, had knowledge of the risk.

The objective approach has the advantage of creating a code of standard conduct for a given factual scenario. This approach does not advantage a reckless person, who is less likely to apprehend risk in situations where a reasonable person would. This approach would deny restitution to such a person despite the fact that he or she did not know of the risk.

The problem with this approach is that it departs from the reason why restitution is granted for mistake. It is the subjective defective consent that makes a mistake actionable in restitution. If it were the objective defective consent, it would permit unusually perceptive persons to profit by allowing them to speculate with their payments without risk. For example if the plaintiff in Kerrison v Glyn, Mills, Currie & Co64 had been wise to the bad creditworthiness of the defendant bank but made the payments anyway, an objective test may enable the plaintiff to make the payments to their advantage (eg to secure a favourable lending arrangement) without the risk because the payments would be safeguarded under the law of mistake.

Another problem with the objective approach is that it would also penalise a person who is not as perceptive by preventing him restitution. Hawkish defendants could take advantage of such persons, for example by intimating the possibility that one would receive a contract if they submitted preparatory plans, even though in such a situation a reasonable person would know that such agreements are unenforceable for lack of writing.65 The defendant would benefit from the preparatory plans and the plaintiff’s action in restitution would fail due to objective knowledge of the risk.

Although allowing restitution to the reckless may offend one’s sense of morality, it must be remembered that it does not come at a cost to a defendant who has been unjustly enriched (provided there is a strong change of position defence and subjective devaluation is applied strictly). A greater danger, is that the objective approach does not negate the possibility of human cunning by defendants profiting from their own reasonable “mistakes” and from other’s unreasonable mistakes.

It is for this reason why a subjective approach is preferred. It accords with the general nature of unjust enrichment as being concerned with the plaintiff’s subjective defective consent. It is also consistent with the economic efficiency and corrective justice theories. Therefore, failing the discovery of any serious defects in such an approach, one must accept the subjective knowledge as the true limiting factor of mispredictions that accords with our “sense of justice”.

C. Proving Knowledge and Onus of Proof

I would suggest that, where a misprediction is alleged, an assumption should be made that the plaintiff understood the consequence arising from the transfer and that they should have the legal onus of proving no knowledge of risk. The very fact of the temporal difference between payment and falsifying fact gives rise to the assumption that the payment was on made on a known uncertain basis. This will ameliorate some of the problems that may be caused where persons merely change their minds about a gratuitous transfer.

Furthermore, a person cannot simply plead that he or she had no knowledge of the transfer and be entitled to restitution. As with all tests concerned with the

64 (1911) 81 LJKB 465.65 Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221.

subjective state of mind of a person, the inquiry is directed to the objectively ascertainable manifestations of subjective intent. A plaintiff cannot simply plead he or she was unaware and overcome its legal burden. In Rosenberg v Percival,66 a case concerned with a doctor’s failure to warn, the defendant had the onus of proving whether she would have refused the treatment had she been warned of the risks of injury. During the initial trial, the plaintiff did not testify on what she would have done had she been warned. Leave was granted for the plaintiff to testify on this point, upon which she simply testified that she would have refused treatment. The High Court held that this was not enough. They looked at evidence relating to the plaintiff’s education, her employment as a nurse which would have made her acutely aware of the risks of surgery and her strong desire to repair her injury. On these objective manifestations, the High Court concluded that had she been warned of the risk, she would have undertaken the surgery in any event, and therefore causation could not be established.

The difficulty in proof in respect to the subjective state of mind has led to calls for objective tests to be administered on such questions. The Canadian Supreme Court have adopted an objective causation test in failure to warn cases.67 However, as is clearly demonstrated above in respect to objective or subjective knowledge of risk, the objective test will lead to clearly undesirable solutions. Thus despite the difficulties associated with the subjective test, it is an unavoidable test which must continue to be endured.

D. Overlap with Failure of Consideration

If we accept restitution for misprediction generally one may think the solid bifurcation between mistake and failure of consideration is pierced. One may conclude that the relaxation of the bar on misprediction will make the need to communicate the basis of a transfer redundant in an action for restitution. But this is an incorrect interpretation. The bifurcation remains solid if we look at the kinds of cases that failure of consideration attracts. One needs only to look at the nature of the “basis” which underpins failure of consideration cases to understand this. In order for a person to communicate a “basis” it is imperative that a person understand the risks. One cannot qualify a transfer on the occurrence of a future event if one does not know that such an event is uncertain. Cases which give rise to restitution for misprediction fall outside of cases that give rise to restitution for failure of consideration, since it is a precondition that the person not have knowledge of the risk to get restitution for misprediction.

E. Subverting Bargains

The concern of finality of transactions was raised in Kleinwort Benson68 as a reason to limit restitution where there is a settled understanding of the law. Lord Goff mentioned the case of Derrick v Williams69 to highlight this difficulty.70 In that case the plaintiff took money out of court on the belief that money for loss of expectation of life could not be recovered. Following the decision in Rose v Ford,71 which allowed a claim for that head of damages, the plaintiff brought a fresh action to recover such loss. The Court of Appeal dismissed this action. First impressions suggest that such a claim should be limited because there was a settled understanding of the law and

66 (2001) 178 ALR 577.67 Arndt v Smith (1997) 148 DLR (4th) 48. For criticism of this approach see Tony Honoré, “Causation and Disclosure of Medical Risks” (1998) 114 Law Quarterly Review 52.68 [1998] 3 WLR 1095.69 [1939] 2 All ER 559. 70 Kleinwort Benson [1998] 3 WLR 1095, 1120.71 [1937] AC 826.

thus the plaintiff could not be mistaken. But this is an unprincipled view. Restitution was not granted because the decision in Rose v Ford72 did not render the plaintiff’s damages assessment void. Therefore the defendant was not unjustly enriched (by failure to claim for loss of expectation of life). This is the crucial distinction from Kleinwort Benson73. The defendant received good consideration for the money it paid to the defendant, namely the discharge of the defendant’s liability. Thus the relationship governing the plaintiff and defendant is akin to contract and the standard of mistake more stringent.

A contractual relationship complicates the law in respect to mistakes because of the concern that allowing restitution will subvert bargains. In David Securities Pty Ltd v Commonwealth Bank of Australia,74 certain provisions in a loan contract were void due to section 261 of the Income Tax Assessment Act 1936 (Cth). A crucial factor that enabled the court to grant restitution was the severability of the loan contract to sums referable and not referable to the void provisions. Restitution was able to be granted in respect to the part of the payments that were paid pursuant to the void provision. Although even in this case the fear of subverting bargains arguably still exists,75 cases where severance is not possible are more problematic. This is why Denning LJ in Solle v Butcher76 stated that the mistake must be “fundamental” in order to attract restitution. The leading restitution commentators have adopted this higher standard of mistake where a contractual relationship exists between parties, however a precise understanding of what is “fundamental” has remained elusive.77

The essence of this difficult is due to the incompatibility of the contract doctrine with the unjust enrichment doctrine.78 In Taylor v Johnson79 it was recognised that the existence of a contract is determined objectively, the touchstone being how one party’s conduct should reasonably be understood by the other. Restitution for mistakes, on the other hand, depends exclusively on whether the plaintiff’s consent to a transfer has been subjectively impaired. Thus, trying to apply this subjective doctrine on a situation which is primarily driven by objective considerations is like trying to put a square peg in a round hole. There will be many situations where a plaintiff’s objective intent and subjective intent will differ. This is where the requirement of “fundamental” comes into play and it is difficult in such cases to decide which way a court should hold.

What needs to be determined is when the subjective impairment of the plaintiff should override the objectively determined manifestations of the contract. The “fundamental mistake” requirement is the demarcating tool. The tension that exists between these two doctrines prohibits a precise definition of “fundamental” because the driving force determining on which side of the fence a case should lie is external to any specific characteristic of the mistake. Rather, policy considerations of when enforcement of bargains should maintain primacy over the plaintiff’s subjective 72 Ibid.73 [1998] 3 WLR 1095.74 (1992) 175 CLR 353.75 Argument was raised by the defendant (although rejected by the High Court) that they would have charged a higher amount of interest had they known the provision was void.76 [1950] 1 KB 671. Note the recent strong rejection of the equitable doctrine of fundamental mistake made by the Court of Appeal in Great Peace Shipping Ltd v Tsavliris (International) Ltd (Unreported, Court of Appeal, Lord Phillips MR, May and Laws LJJ, 14 October 2002). 77 Birks, Introduction to the Law of Restitution, above n Error: Reference source not found, 160-164; Tettenborn, above n Error: Reference source not found, 66; Burrows, The Law of Restitution, above n Error: Reference source not found, 127-130 (please note the distinction drawn between equity and common law). See also Goff J in Barclays Bank Ltd v WJ Simms, Sons and Cooke [1980] QB 677, 695.78 The interface between these two doctrines are far from clear – See Ross Grantham, “Security of Contract: The Challenge from Restitution” (2000) 16 Journal of Contract Law 102.79 (1983) 151 CLR 422.

impairment is the crucial factor. Because of the difficulty in precise definition, it is with a little trepidation, that I attempt to clear the mud.

Gaudron J stated in Chappel v Hart80 that the concept of causation is not answered in a legal vacuum. This is equally applicable to contracts. Contracts cannot be made without the existence of a legal structure for enforcement and interpretation. Without this, contracts would be mere puffs of intention. Thus, a provision making time be of the essence only has value because the parties understood how such a provision will be interpreted and that it will be enforced. An intention to contract cannot exist without contemplation of contract law. Similarly, when a person makes a fundamental mistake significant enough to set aside a contract, it is because the court has previously held that such a mistake is fundamental. Admittedly this is a circular argument and equally perplexing as the chicken and the egg question. However, what it does explain, is the theory that fundamental mistakes afford restitution because of an implied intention that parties would not be bound where either party has committed a fundamental mistake. A party that contracts in a jurisdiction impliedly accepts the law in that jurisdiction. It is for this reason that mistakes as to identity,81 mistakes as to the existence of the subject matter,82 and other fundamental mistakes afford restitution.

Despite the difficulty of precise definition, the danger of subverting bargains should not deter us from granting restitution for mistake. This danger is controlled by the requirement of “fundamental” where bargains exist. As evidenced by Derrick v Williams83 there will be situations where common sense indicates that restitution should not be granted for misprediction. There is temptation in such cases to point to the temporal nature of the mistake because of the similarities between predictions and promises. The allure of denying restitution for misprediction is clouded by the desire to protect bargains. It is perhaps this allure, that caused Birks to advise that the only way to protect a prediction is to communicate the basis of the transfer.84

However, if we leave aside the difficulties facing restitution where a contract exists, it becomes evident that this concern is unwarranted, for the problem is not the fact that there was a future promise (or prediction) but because valuable consideration (in the contractual sense) has been exchanged. It is for this reason why contracts should have a special kind of resistance.

F. Security of Receipt

Another concern with a more liberal approach to restitution for misprediction is that it unnecessarily causes to much insecurity of receipt, notwithstanding the absence of a contractual relationship. There is a fear that people will become inclined to dispose of their wealth more quickly because of fear of restitution. Whether this fear is real or merely perceived is another question, but one can counter this argument with two important considerations.

Firstly, this paper assumes a robust change of position defence which will negate any loss suffered by the defendant as a result of being unjustly enriched. Therefore granting restitution for misprediction does not come at a cost to the defendant and his ability to apply the unjust payment in a bona fide85 manner is unrestricted.

80 (1998) 72 ALJR 1344, at 1346.81 Ingram v Little [1961] 1 QB 31.82 Pritchard v Merchant’s and Tradesman’s Mutual Life Assurance Society (1858) 3 CB NS 622.83 [1939] 2 All ER 559. 84 Peter Birks, Introduction to the Law of Restitution, above n 5, 147-14885 The defendant must be bona fide to rely on the knowledge of risk test. This is the situation with the Honest Submission to Claim Test – Arrowsmith, above n Error: Reference source notfound, 27-28.

Secondly if restitution is not available for misprediction it will result in many inequitable situations occurring. Consider the void swaps saga as an example.86 It seems highly inequitable to afford Hazell but not Kleinwort Benson restitution simply because it was not the first party to litigate the validity of the local authority’s power. It offends corrective justice to apply a settled understanding of the law limitation if the concern is the security of transactions. This concern pervades all transactions, since they are all contingent on possible mistakes of fact, mistakes of law and a multitude of other uncertainties.

Security of receipt, being a public concern, should be tackled with a public response and an arbitrarily defined limitation is the appropriate response. Any other response for example, limiting restitution for misprediction, where one acted on a settled understanding of the law, suggests that mistakes of these kinds are less deserving of protection. This is clearly not the case, given that whether the true state of affairs is ascertainable or not is not a relevant factor limiting mistake.

G. Application: Dextra Bank & Trust Co Ltd v Bank of Jamaica87

In this case, Dextra Bank & Trust Co Ltd (“Dextra”) drew a cheque for almost US$3 000 000 in favour of Bank of Jamaica (“BOJ”), Through a fraud committed by Mr Beckford, an employee of BOK and Mr Phillips and Mr Wildish, two currency traders, the plaintiff and defendant misconceived the purpose of the money. Dextra was led to believe that the sum was the principal for a loan to BOJ. BOJ believed the sum was amounts owed through foreign currency trading transactions with Caymanian investors.

The fraud was committed in the following manner: The currency traders, Messrs Phillips and Wildish, approached Dextra with a fictitious loan proposal. Dextra agreed to this fictitious loan and dispatched the currency traders to execute a promissory note in favour of Dextra. However, as it transpired, the currency traders never secured such a note. Simultaneously, Mr Beckford arranged with BOJ to have other cheques paid out to various fictitious individuals. They were paid out before BOJ had received the cheque from Dextra. Mr Beckford was able to do this because of a tacit agreement with BOJ that allowed him to direct funds with a view to entering foreign currency transactions.

The result of this conspiracy was that Dextra’s cheque was received by BOJ and other payments totalling US$3 000 000 were paid out by BOJ to fictitious individuals. Dextra sought to recover its loss from BOJ arguing that it had made the payment on a mistake of fact. The Privy Council denied their claim stating that Dextra only suffered from a misprediction as to its agent’s actions.

The decision of the Privy Council is a difficult decision to reconcile with the thesis of this paper. While it was true that Dextra mispredicted the actions of its agents, it was also true that Dextra was acting under a mistake of present fact. Given the ability to reanalyse the facts, it is evident that this case is inconsistent with a number of other cases. The landmark case of Lipkin Gorman v Karpnale Ltd88 is one example. In that case, another dishonest agent, Cass, misappropriated trust money of the plaintiff’s and gambled it way at the defendant casino. In that case, restitution was afforded although it was equally open to the court to characterise the mistake (or perhaps more correctly, ignorance) as a misprediction as to Cass’ fraudulent actions. In fact the claim for mistake of fact is stronger in Dextra89 because of the finding that the cheque was never the property of the fraudulent agent, whereas in Lipkin 86 Compare minority in Kleinwort Benson [1998] 3 WLR 1095, with Hazell [1992] 2 AC 1.87 (Unreported, Privy Council, Lord Bingham, Lord Goff, Lord Hobhouse, Nourse, Rusell LJJ, 26 November 2001).88 [1991] 2 AC 548.89 (Unreported, Privy Council, Lord Bingham, Lord Goff, Lord Hobhouse, Nourse, Rusell LJJ, 26 November 2001).

Gorman v Karpnale Ltd,90 the finding that Cass was owner of the money at law, made the claim for restitution much more difficult.91

CONCLUSION

The continued distinction between mistakes proper and mispredictions will result in inconsistent and inequitable decisions being made. The position of this paper is fortified by comments made by Judge LJ in Fashion Gossip v Esprit Telecoms,92 where he expressed concern with the distinction, quoting Lord Hoffmann in Kleinwort Benson93 that the distinction is too “abstract” an approach to practical realities.

In order to find the true principle why most mispredictions are not actionable for restitution one must look more closely at the reasons why restitution is granted for mistake. Closer inspection of the rationale leads to the alternative approach based on knowledge of risk when entering a transfer. Where the risk is known, the common law requires that the transfer is qualified in order for the payer to be absolved from the risk. We can go further and question this common law requirement and argue for a more civilian approach, but that is not the purpose of this paper. It is enough, for now, to see the fallacy behind denying restitution for mispredictions.

90 [1991] 2 AC 548.91 See William Swadling, “A Claim in Restitution?” [1996] Lloyds Maritime and Commercial Law Quarterly 63; Elise Bant, “Ignorance as a Ground of Restitution – can it survive?” [1998] Lloyds Maritime and Commercial Law Quarterly 18.92 (Unreported, Court of Appeal, Judge LJ, 27 July 2000).93 [1998] 3 WLR 1095.