Kleinwort Benson Ltd. v. Lincoln (City), (1998) 233 N.R. 201 (HL)

• Case Date: Thursday October 29, 1998
• Jurisdiction: Canada (Federal)
• Citations: (1998), 233 N.R. 201 (HL)

Kleinwort Benson Ltd. v. Lincoln (1998), 233 N.R. 201 (HL)

MLB headnote and full text

Kleinwort Benson Ltd. (appellants) v. Lincoln City Council (respondents)

Kleinwort Benson Ltd. (appellants) v. Mayor etc. of the London Borough of Southwark and Others (respondents)

Kleinwort Benson Ltd. (appellants) v. Birmingham City Council (respondents)

Kleinwort Benson Ltd. (appellants) v. Mayor etc. of the London Borough of Kensington and Chelsea and Others

(respondents)

Indexed As: Kleinwort Benson Ltd. v. Lincoln (City)

House of Lords

London, England

Lord Browne-Wilkinson, Lord Goff of Chieveley,

Lord Lloyd of Berwick, Lord Hoffmann

and Lord Hope of Craighead

October 29, 1998.

Summary:

A bank, Kleinwort Benson Ltd., entered into interest rate swap transactions with four local authorities. Subsequently, a court deci­sion declared that interest swap agreements were void. Following the decision, the bank commenced actions against the local author­ities claiming restitution of the sums it had paid to them under these transactions. The bank alleged that the money in question was paid under a mistake of law, i.e., under the mistaken belief that it was being paid pursu­ant to a binding contract between the bank and the local authorities. However, under the law as it stood in England at the time, in general, money was not recoverable in resti­tution on the ground that it was paid under a mistake of law. An issue arose, inter alia, as to whether this rule should be maintained. The trial judge made a preliminary ruling that the pleadings did not disclose a cause of action in mistake and issued a certificate for appeal sending the case directly to the House of Lords.

The House of Lords, Lord Browne-Wilkin­son and Lord Lloyd of Berwick, dissenting, allowed the appeals. The court ruled, inter alia, that the rule that money was not re­coverable in restitution on the ground that it was paid under a mistake of law was no longer part of English law. Therefore the facts pleaded by the bank in each action disclosed a cause of action in mistake.

Courts - Topic 21

Stare decisis - Authority of judicial deci­sions - The common law - General prin­ciples - The House of Lords, per Lord Goff of Chieveley, discussed the nature of judicial decisions including the declaratory theory of judicial decisions - The court also discussed how judges develop the common law - See paragraphs 47 to 61.

Courts - Topic 28

Stare decisis - Authority of judicial deci­sions - The common law - Modification or extension of common law rule - The House of Lords held that the mistake of law rule (i.e., the rule that generally money is not recoverable in restitution on the ground that it was paid under a mistake of law) no longer formed part of English law - Rather, English law should recognize that there is a general right to recover money paid under a mistake, whether of fact or law, subject to the defences avail­able in the law of restitution - See para­graphs 22 to 43, 79, 116 to 129, 142 to 147.

Limitation of Actions - Topic 1584

Equitable relief - Mistake - A bank, Klein­wort Benson Ltd., entered into inter­est rate swap transactions with four local author­ities - Subsequently, a court deci­sion declared that interest swap agreements were void - Following that decision, the bank sued the local authorities claiming restitution of the sums it had paid to them under these transactions - The bank argued that its actions for the recovery on the ground of mistake of law of money paid under void interest swap agreements were actions for relief from the con­se­quences of a mistake within the meaning of s. 32(1)(c) of the Limitation Act, 1980 (U.K.), and therefore the limitation period ran from when the mistake was discovered - The House of Lords agreed with the bank's argument, holding that s. 32(1)(c) applied in the case of an action for the recovery of money paid under a mistake of law - See paragraphs 73 to 79, 81, 177 to 181.

Mistake - Topic 1701

Recovery of money paid under mistake - Mistake of law - General - [See Courts - Topic 28 ].

Mistake - Topic 1701

Recovery of money paid under mistake - Mistake of law - General - The House of Lords, per Lord Goff of Chieveley, reviewed the origins of the rule that money is not recoverable in restitution on the ground that it was paid under a mistake of law - The court also discussed the criti­cisms of the rule and the rejection of the mistake of law rule in the common law world - See paragraphs 32 to 42.

Mistake - Topic 1701

Recovery of money paid under mistake - Mistake of law - General - The House of Lords held that there is no principle of English law that payments made under a settled understanding of the law which is subsequently departed from by judicial decision shall not be recoverable in resti­tu­tion on the ground of mistake of law (i.e., when established law is changed by the courts, money rightly paid in accord­ance with the old established law is re­coverable as having been paid under a mistake of law) - See paragraphs 44 to 61, 79, 116 to 129 and 169 to 171.

Mistake - Topic 1701

Recovery of money paid under mistake - Mistake of law - General - The House of Lords, per Lord Goff of Chieveley, held that it is no defence to a claim in English law for restitution of money paid or prop­erty transferred under a mistake of law that the defendant honestly believed, when he learned of the payment or transfer, that he was entitled to retain the money or prop­erty - See paragraphs 62 to 67, 79.

Mistake - Topic 1705

Recovery of money paid under mistake - Mistake of law - Money paid under invalid contract - A bank, Kleinwort Benson Ltd., entered into interest rate swap transactions with four local author­ities - Subsequently, a court decision declared that interest swap agreements were void - Following that decision, the bank sued the local author­ities claiming restitution of the sums it had paid to them under these transactions - The trial judge ruled that the pleadings dis­closed no cause of action in mistake because of the rule that generally money is not recoverable in restitution on the ground that it was paid under a mistake of law - The House of Lords held that the rule that money was not recoverable in restitution on the ground that it was paid under a mistake of law was no longer part of Eng­lish law - Therefore, the bank's pleadings disclosed a cause of action in mistake - See para­graphs 22 to 43, 116 to 129, 142 to 182.

Mistake - Topic 1705

Recovery of money paid under mistake - Mistake of law - Money paid under invalid contract - The House of Lords, per Lord Goff of Chieveley, held that there is no principle of English law that money paid under a void contract is not recover­able on the ground of mistake of law because the contract was fully performed - See para­graphs 68 to 72, 79, 172 to 176.

Restitution - Topic 70

Unjust enrichment - Where money paid under mistake of law - [See Courts - Topic 28 and first Mistake - Topic 1705 ].

Cases Noticed:

Hazell v. London Borough of Hammer­smith and Fulham et al., [1992] 2 A.C. 1; 125 N.R. 123 (H.L.), refd to. [para. 3 et seq.].

University of Wollongong v. Merwally, 158 C.L.R. 447 (Aust. H.C.), refd to. [para. 8].

Baker v. Courage & Co., [1910] 1 K.B. 56, refd to. [paras. 9, 155].

Henderson v. Folkestone Waterworks Co. (1885), 1 T.L.R 329, refd to. [paras. 11, 45, 118].

Derrick v. Williams, [1939] 2 All E.R. 559 (C.A.), refd to. [paras. 12, 53].

Roberts, Re; Roberts v. Roberts, [1905] 1 Ch. 704 (C.A.), refd to. [para. 12].

Commissioner of State Revenue v. Royal Insurance Australia Ltd. (1994), 182 C.L.R. 51; 69 A.L.J.R. 51 (Aust. H.C.), refd to. [para. 13 et seq.].

Hollis' Hospital and Hague's Contract, Re, [1899] 2 Ch. 540, refd to. [para. 17].

Downshire Settled Estates, Re; Downshire (Marquess) v. Royal Bank of Scotland, [1953] Ch. 218 (C.A.), refd to. [para. 17].

Hazell v. London Borough of Hammer­smith and Fulham et al., [1990] 2 Q.B. 697 (Div. Ct.), refd to. [para. 23].

Bilbie v. Lumley (1802), 2 East 469 (K.B.), refd to. [paras. 32, 144].

Lowry v. Bourdieu (1780), 2 Doug. K.B. 468; 99 E.R. 299, refd to. [paras. 34, 144].

Brisbane v. Dacres (1813), 5 Taunt. 143; 128 E.R. 641 (K.B.), refd to. [para. 34].

Wilson & M'Lellan v. Sinclair (1830), 3 Wils. & S. 398 (Scot.), refd to. [para. 35].

Kelly v. Solari (1841), 9 M. & W. 54, refd to. [paras. 35, 119, 164].

Dixon v. Monkland Canal Co. (1831), 5 Wils. & S. 445 (Scot.), refd to. [para. 36].

Lipkin Gorman v. Karpnale Ltd., [1991] 2 A.C. 548; 127 N.R. 380 (H.L.), refd to. [paras. 38, 92, 164].

Nepean Hydro Electric Commission v. Ontario Hydro, [1982] 1 S.C.R. 347; 41 N.R. 1, refd to. [paras. 39, 145].

Air Canada and Pacific Western Airlines Ltd. v. British Columbia, [1989] 1 S.C.R. 1161; 95 N.R. 1; 59 D.L.R.(4th) 161, refd to. [paras. 39, 146].

David Securities Pty. Ltd. v. Common­wealth Bank of Australia (1992), 175 C.L.R. 353 (Aust. H.C.), refd to. [paras. 39, 145].

Willis Faber Enthoven (Pty.) Ltd. v. Receiver of Revenue (1992) (4) S.A. 202 (S. Africa C.A.), refd to. [paras. 39, 145].

Morgan Guaranty Trust Co. of New York v. Lothian Regional Council, [1995] S.C. 151; [1995] S.L.T. 299 (Scot. Ct. of Sess., Inner House), refd to. [paras. 39, 85, 144].

Woolwich Building Society v. Commis­sioners of Inland Revenue, [1993] A.C. 70; 145 N.R. 163 (H.L.), refd to. [paras. 41, 82].

Hallett Estate, Re; Knatchbull v. Hallett (1880), 13 Ch. D. 696, refd to. [para. 47].

South Pacific Co. v. Jensen (1917), 244 U.S. 2095, refd to. [para. 48].

Westdeutsche Landesbank Girozentrale v. Islington London Borough Council, [1994] 4 All E.R. 890, refd to. [paras. 52, 132].

Rose v. Ford, [1937] A.C. 826 (H.L.), refd to. [para. 53].

Bell Brothers Pty. Ltd. v. Shire of Serpen­tine - Jarrahdale, [1969] W.A.R. 155 (Aust.), refd to. [paras. 61, 169].

Diplock, Re, [1948] Ch. 465 (C.A.), refd to. [paras. 76, 132].

Phillips-Higgins v. Harper, [1954] 1 Q.B. 411 (C.A.), refd to. [para. 76].

Beauchamp (Earl) v. Winn (1873), L.R. 6 H.L. 223 (H.L.), refd to. [paras. 77, 147].

Donoghue v. Stevenson, [1932] A.C. 562; [1932] All E.R. Rep. 1 (H.L.), refd to. [para. 93].

McAlister (Donoghue) v. Stevenson - see Donoghue v. Stevenson.

Hedley Byrne & Co. v. Heller & Part­ners Ltd., [1963] 2 All E.R. 575; [1963] 3 W.L.R. 101; [1964] A.C. 465 (H.L.), refd to. [para. 93].

Modern Engineering (Bristol) Ltd. v. Gilbert-Ash (Northern) Ltd., [1974] A.C. 689 (H.L.), refd to. [para. 93].

Dawnays Ltd. v. Minter (F.G.) Ltd. and Trollope & Colls Ltd., [1971] 1 W.L.R. 1205 (C.A.), refd to. [para. 93].

Beaufort Developments (N.I.) Ltd. v. Gilbert-Ash N.I. Ltd. and others, [1998] 2 W.L.R. 860 (H.L.), refd to. [para. 93].

Northern Regional Health Authority v. Crouch (Derek) Construction Co., [1984] Q.B. 644 (C.A.), refd to. [para. 93].

Hindcastle Ltd. v. Attenborough (Barbara) Associates Ltd., [1997] A.C. 70 (H.L.), refd to. [para. 93].

Stacey v. Hill, [1901] 1 K.B. 660 (C.A.), refd to. [para. 93].

Hong Kong (Attorney General) v. Reid et al., [1994] 1 A.C. 324; 163 N.R. 221 (P.C.), refd to. [para. 93].

Lister & Co. v. Stubbs (1890), 45 Ch. D. 1 (C.A.), refd to. [para. 93].

Stirling v. Lauderdale (Earl) (1733), Mor. 2930 (Scot.), refd to. [para. 144].

Fibrosa Spolka Akcyjna v. Fairbairn Law­son Combe Barbour Ltd., [1943] A.C. 32 (H.L.), refd to. [para. 146].

Pavey & Matthews Pty. Ltd. v. Paul (1987), 162 C.L.R 221 (Aust.), refd to. [para. 146].

Cooper v. Phibbs (1867), L.R. 2 H.L. 149, refd to. [para. 147].

British Hydro-Carbon Chemicals Ltd. and British Transport Commission, Petition­ers, Re, [1961] S.L.T. 280, refd to. [para. 147].

Kiriri Cotton Co. v. Dewani, [1960] A.C. 192 (P.C.), refd to. [para. 147].

R. v. Tower Hamlets London Borough Council; Ex parte Chetnik Developments Ltd.- see Chetnik Developments Ltd. v. London Borough of Tower Hamlets.

Chetnik Developments Ltd. v. London Borough of Tower Hamlets, [1988] A.C 858; 97 N.R. 358 (H.L.), refd to. [para. 179].

Condon, Re; Ex parte James (1874), 9 Ch. App. 609 (L.J.J.), refd to. [para. 179].

Statutes Noticed:

Limitation Act, 1980 (U.K.), sect. 32(1)(c) [paras. 27, 73].

Authors and Works Noticed:

Beatson, Article, [1995] R.L.R. 280, p. 284 [para. 10].

Birks, P., An Introduction to the Law of Restitution (2nd Ed. 1989), pp. 140 et seq. [para. 154]; 164 to 167 [para. 36].

Birks, Peter, No Consideration: Restitution after Void Contracts (1993), 23 Univ. of West. Aust. L. Rev. 195, generally [para. 68]; p. 230, fn. 137 [para. 174].

Blackstone's Commentaries on the Laws of England (6th Ed.), vol. 1, pp. 88, 89 [para. 47].

British Columbia, Law Reform Commis­sion Report, Benefits Conferred under a Mistake of Law, Report No. 51 (1981), pp. 68 et seq. [para. 61]; 70 to 72 [para. 169].

Burrows, Andrew, Swaps and the Friction between Common Law and Equity, [1995] R.L.R. 15, generally [para. 22]; pp. 18, 19 [paras. 72, 176].

Burrows, Law of Restitution (4th Ed. 1993), pp. 118, 119 [paras. 10, 54]; 120 [para. 10].

Corbin, Arthur L., Contracts, vol. 3, p. 756, para. 617 [para. 36].

Cross and Harris, Precedent in English Law (4th Ed.), p. 33 [para. 51].

Englard, International Encyclopedia of Comparative Law (1991), vol. 10, pp. 8 to 9, para. 5.13, 18, para. 5.30 [para. 153].

Erskine, Institutes III iii 54 (1773), gen­erally [para. 145].

Evans, William, Essay on the Action for Money Had and Received, [1998] R.L.R., generally [para. 34].

France, Cour de Cassation (Assemblée Plénière), pp. 2.4.1993, D.1993.373 [para. 41].

Goff, Robert, and Jones, Gareth, The Law of Restitution (3rd Ed. 1986), pp. 118, 119 [para. 166].

Hale, History of the Common Law (6th Ed.), p. 90 [para. 47].

Jackson, History of Quasi-Contract, pp. 58 to 51 [para. 34].

Keener, Law of Quasi-Contracts (1893), p. 85 et seq. [para. 36].

Maitland, The Search for Principle (1983), vol. 119, pp. 170, 186 [para. 48].

New South Wales, Law Reform Commis­sion Paper, Paper No. 53 (1987), paras. 5.20 to 5.29 [para. 61].

Scotland, Law Commission Discussion Paper, Judicial Abolition of the Error of Law Rule and its Aftermath, Paper No. 99 (1996), paras. 2.123 [para. 106]; 3.14 [para. 51]; 3.33 [para. 97]; 3.51 [para. 170].

Scotland, Law Commission Discussion Paper, Recovery of Benefits Conferred under Error of Law, Paper No. 95 (1993), generally [paras. 85, 106]; para. 2.125 [para. 170].

Seavey and Scott, American Restatement of the Law of Restitution (1937), gen­erally [para. 38].

South Australia, Law Reform Committee, Report No. 84 (1984), p. 31 [para. 61].

United Kingdom, Law Commission Con­sultation Paper, Restitution of Payments made under a Mistake of Law, Paper No. 120, pp. 74 to 84 [para. 56]; paras. 2.24 to 2.26 [para. 37]; 2.57 to 2.65 [para. 45]; 2.65 [para. 52].

United Kingdom, Law Reform Commis­sion Report, Restitution: Mistakes of Law and Ultra Vires Public Authority Receipts and Payments, Report No. 227 (1994), Cmnd. 2731, generally [paras. 57, 85, 98]; p. 196, s. 3 [para. 45]; paras. 2.5 to 2.15 [para. 37]; 3.1, 3.8 to 3.12 [para. 40]; 5.1 to 5.13 [paras. 19, 90]; 5.2 to 5.16 [para. 10]; 5.3 [para. 45]; 5.11 [para. 111]; 5.13 [paras. 89, 170]; Clauses 2, 3(1) [para. 87].

United Kingdom, Law Revision Commit­tee, 5th Interim Report (Statutes of Limi­tation) (1936), Cmnd. 5334, pp. 31 to 32, para. 23 [para. 178].

Woodward, Law of Quasi-Contracts (1913), p. 54 et seq. [para. 36].

Wright, Legal Essays and Addresses (1939), Preface, p. xix [para. 145]; p. 19 [para. 36].

Zweigert and Kotz, An Introduction to Comparative Law (2nd Ed. 1987), vol. 2, pp. 232, 261 [para. 153]; 262, 263, 267 [para. 151].

Counsel:

Richard Southwell, Q.C., and Rhodri Davies, for the appellants;

Nicholas Underhill, Q.C., and Charles Bear, for the respondents.

Agents:

Clifford Chance, for the appellants;

Sharpe Pritchard, Southwark Legal Ser­vices, for the respondents.

These appeals were heard on March 9-12 and 16, 1998, before Lord Browne-Wilkin­son, Lord Goff of Chieveley, Lord Lloyd of Berwick, Lord Hoffmann and Lord Hope of Craighead, of the House of Lords.

On October 29, 1998, the decision was delivered for the House of Lords and the following opinions were filed:

Lord Browne-Wilkinson, dissenting - see paragraphs 1 to 21;

Lord Goff of Chieveley - see paragraphs 22 to 80;

Lord Lloyd of Berwick, dissenting - see paragraphs 81 to 115;

Lord Hoffmann - see paragraphs 116 to 129;

Lord Hope of Craighead - see para­graphs 130 to 182.