Kleinwort Benson Ltd v Lincoln City Council

JurisdictionUK Non-devolved
Judgment Date29 October 1998
Judgment citation (vLex)[1998] UKHL J1029-2
CourtHouse of Lords
Date29 October 1998
Kleinwort Benson LTD.
Lincoln City Council
Kleinwort Benson LTD.
Mayor ETC. of the London Borough of Southwark

And Others

Kleinwort Benson LTD.
Birmingham City Council
Kleinwort Benson LTD.
Mayor ETC. of the London Borough of Kensington and Chelsea

And Others


(On Appeal from the Queens Bench Division of yhe High Courts of Justice)

[1998] UKHL J1029-2

Lord Browne-Wilkinson

Lord Goff of Chieveley

Lord Lloyd of Berwick

Lord Hoffmann

Lord Hope of Craighead



My Lords,


I have had the advantage of reading in draft the speech of my noble and learned friend, Lord Goff of Chieveley which contains yet another major contribution to the law of restitution.


Were it not for one matter, I would be in full agreement with his views. But unfortunately he and the majority of your Lordships take the view that when established law is changed by a subsequent decision of the Courts, money rightly paid in accordance with the old established law is recoverable as having been paid under a mistake of law. I take the view that the monies are not recoverable since, at the time of payment, the payer was not labouring under any mistake.


The majority view is that the decision in Hazell v. London Borough of Hammersmith and Fulham [1992] 2 A.C. 1 established that the swaps agreements were void; that although the decision in Hazell post-dated the last of the payments made by Kleinworts to the local authorities the decision operated retrospectively so that under the law as eventually established Kleinworts were labouring under a mistake at the time they made each payment in thinking that they were liable to make such payment. Therefore, in their view, Kleinworts can recover payments made under a mistake of law. My view, on the other hand, is that although the decision in Hazell is retrospective in its effect, retrospection cannot falsify history: if at the date of each payment it was settled law that local authorities had capacity to enter into swap contracts, Kleinworts were not labouring under any mistake of law at that date. The subsequent decision in Hazell could not create a mistake where no mistake existed at the time.


There are two questions to be considered. First, when the common law is changed by later judicial decision, have all payments made on the basis of the previous law been made under a mistake of law? Second, in what circumstances can it be said that there was earlier law which was changed by judicial decision? Does there have to be a clear judicial decision overruled by a later judicial decision of a higher court or is it enough that, at the date of payment, there was a generally accepted view of the law which view was upset by the later decision?


Where the law is established by judicial decision subsequently overruled


I will take the case where the law has been established by a single decision of the Court of Appeal made in 1930. In 1990 the payer makes a payment which would only have been due to the payee if the Court of Appeal decision was good law. The payer was advised that the Court of Appeal decision was good law. In 1997 this House overruled the Court of Appeal decision. Is the plaintiff entitled to recover the payment made in 1990 on the ground of mistake of law?


There is, as I understand it, no dispute that in order to recover the plaintiff has to have been labouring under the mistake at the date of payment and to have made the payment because of that mistake. Certainly that position has been accepted by Kleinworts in their written reply and by my noble and learned friend, Lord Goff. The question is whether the subsequent overruling of the 1930 Court of Appeal decision requires the court to hold that at the date of payment (1990) the law (contrary to what the plaintiff had been advised) was not the law established by the Court of Appeal decision of 1930.


The theoretical position has been that judges do not make or change law: they discover and declare the law which is throughout the same. According to this theory, when an earlier decision is overruled the law is not changed: its true nature is disclosed, having existed in that form all along. This theoretical position is, as Lord Reid said, a fairy tale in which no-one any longer believes. In truth, judges make and change the law. The whole of the common law is judge-made and only by judicial change in the law is the common law kept relevant in a changing world. But whilst the underlying myth has been rejected, its progeny–the retrospective effect of a change made by judicial decision–remains. As Lord Goff in his speech demonstrates, in the absence of some form of prospective overruling, a judgment overruling an earlier decision is bound to operate to some extent retrospectively: once the higher court in the particular case has stated the changed law, the law as so stated applies not only to that case but also to all cases subsequently coming before the courts for decision, even though the events in question in such cases occurred before the Court of Appeal decision was overruled.


Therefore the precise question is whether the fact that the later overruling decision operates retrospectively so far as the substantive law is concerned also requires it to be assumed (contrary to the facts) that at the date of each payment the plaintiff made a mistake as to what the law then was. In my judgment it does not. The main effect of your Lordships' decision in the present case is to abolish the rule that money paid under a mistake of law cannot be recovered, which rule was based on the artificial assumption that a man is presumed to know the law. It would be unfortunate to introduce into the amended law a new artificiality, viz., that a man is making a mistake at the date of payment when he acts on the basis of the law as it is then established. He was not mistaken at the date of payment. He paid on the basis that the then binding Court of Appeal decision stated the law, which it did: the fact that the law was later retrospectively changed cannot alter retrospectively the state of the payer's mind at the time of payment. As Deane J. said in the High Court of Australia in University of Wollongong v. Merwally 158 C.L.R. 447 at p. 478:

"A parliament may legislate that, for the purposes of the law which it controls, past facts or past laws are to be deemed and treated as having been different to what they were. It cannot however objectively expunge the past or alter the facts of history."


If that be true of statutory legislation, the same must a fortiori be true of judicial decision. In my judgment, therefore, if a man has made a payment on an understanding of the law which was correct as the law stood at the date of such payment he has not made that payment under a mistake of law if the law is subsequently changed.


I am fortified in that view by considering what will be the effect of your Lordships' decision. A payment which was initially irrecoverable will subsequently become recoverable. Consider the hypothetical case I have put. A payment was made in 1990 when the Court of Appeal decision was still valid. Under the existing law, the claim in restitution should apparently have arisen at the date of such payment: see Baker v. Courage & Co. [1910] 1 K.B. 56. Yet at that date there could be no question of any mistake. It would not have been possible to issue a writ claiming restitution on the grounds of mistake of law until the 1997 decision had overruled the 1930 Court of Appeal decision. Therefore a payment which, when made, and for several years thereafter, was entirely valid and irrecoverable would subsequently become recoverable. This result would be subversive of the great public interest in the security of receipts and the closure of transactions. The position is even worse because all your Lordships consider that the claims to recover money paid under a mistake of law are subject to section 32(1)(c) of the Limitation Act 1980, i.e. that in such a case time will not begin to run until the "mistake" is discovered. A subsequent overruling of a Court of Appeal decision by the House of Lords could occur many decades after payments have been made on the faith of the Court of Appeal decision: in such a case "the mistake" would not be discovered until the later overruling. All payments made pursuant to the Court of Appeal ruling would be recoverable subject only to the possible defence of change of position.


With one possible exception, such judicial and other authority as there is favours the view that there is no relevant mistake of law if the payment is made on the basis of the law as it stood at the date of payment. As to non-judicial authority the Law Commission has taken the view that there would be no relevant mistake: Report No. 227 "Restitution: Mistakes of Law and Ultra Vires Public Authority Receipts and Payments" (Cm. 2731), paras. 5.2-5.16. Not surprisingly, Professor Beatson shares that view: see 1 995 R.L.R. 280 at p. 284; see also Professor Burrows Law of Restitution pp. 118-120.


As to judicial authority there is a dearth of decisions directly in point. Since the payment of money under a mistake of law was not recoverable in any event, there is little discussion as to what constitutes a mistake of law in that context. However, there are two English cases which throw some light. In Henderson v. Folkestone Waterworks Co. (1885) 1 T.L.R. 329, the plaintiff had paid water rates to the defendant calculated in accordance with the law as it was held to be by the Court of Appeal. Subsequent to the date of payment, the House of Lords in the Dobbs case changed the law: if calculated under the changed law the plaintiff had overpaid. He sought to...

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