Right of Recovery of Money Paid under Mistake
Kleinwort Benson had made payments to a local authority under swap agreements which were thought to be legally enforceable when made. Subsequently, a decision of the House of Lords, (Hazell v. Hammersmith and Fulham) established that such swap agreements were unlawful. Kleinwort Benson then sought restitution of the payments on the basis of a mistake of law.
Held: It should be recognised that there was a general right to recover money paid under a mistake, whether of fact or law. ‘the mistake of law rule no longer forms part of English law.’ Where the law was deemed to have changed after a court decision, money paid under a view of the previous settled law became recoverable. The law is deemed always to have been as now found. The limitation period ran from the date of the discovery of the error of law. The old rule is not to be followed. Money paid under a mistake of law should be recoverable on the same footing as money paid under a mistake of fact, subject in the same way to the defences available in the law of restitution, which include the defence of change of position. ‘I should consider whether parties in the position of the appellant bank were mistaken when they paid money to local authorities under interest swap agreements which they, like others, understood to be valid but have later been held to be void. To me, it is plain that the money was indeed paid over under a mistake, the mistake being a mistake of law. The payer believed, when he paid the money, that he was bound in law to pay it. He is now told that, on the law as held to be applicable at the date of the payment, he was not bound to pay it. Plainly, therefore, he paid the money under a mistake of law, and accordingly subject to any applicable defences, he is entitled to recover it.’ and ‘The present rule, under which in general money is not recoverable in restitution on the ground that it has been paid under a mistake of law, should no longer be maintained as part of English law, from which it follows that the facts pleaded by the bank in each action disclose a cause of action in mistake. 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.’
Lord Lloyd of Berwick discussed the ability of the common law to change: ‘This brings us to the central question. Nobody now suggests that the common law is static. It is capable of adapting itself to new circumstances. Is it then capable of being changed? or is it only capable of being developed? The common sense answer is that the common law is capable of being changed, not only by legislation, but also by judicial decision. This is nowhere clearer than when a long-standing decision of the Court of Appeal is overruled. Indeed in a system such as ours, where the Court of Appeal is bound by its own previous decisions, the main justification for the existence of a second tier appeal is that it enables the House to re-direct the law when it has taken a wrong turning. ‘
Lord Browne-Wilkinson, Lord Goff of Chieveley, Lord Lloyd of Berwick, Lord Hoffmann, Lord Hope of Craighead
Gazette 18-Nov-1998, Gazette 10-Feb-1999, Times 30-Oct-1998,  UKHL 38,  2 AC 349,  4 All ER 513,  3 WLR 1095,  Lloyds Rep Bank 387
House of Lords, Bailii
England and Wales
Limited – David Securities Pty Ltd v Commonwealth Bank of Australia 1992
(High Court of Australia) Moneys paid away as a result of a causative mistake of law are recoverable: ‘the payer will be entitled prima facie to recover moneys paid under a mistake if it appears that the moneys were paid by the payer in the mistaken . .
Appeal from – Kleinwort Benson Ltd v Birmingham City Council CA 20-May-1996
No defence of unjust enrichment was available to defend a claim on a failed interest rate swap agreement. . .
Cited – Hazell v Hammersmith and Fulham London Borough Council HL 1991
Swap deals outwith Council powers
The authority entered into interest rate swap deals to protect itself against adverse money market movements. They began to lose substantial amounts when interest rates rose, and the district auditor sought a declaration that the contracts were . .
Overruled – Bilbie v Lumley and Others 28-Jun-1802
Contract Not Set Aside for Mistake as to Law
An underwriter paid a claim under a policy which he was entitled in law to repudiate for non-disclosure. Although he knew the relevant facts, he was not aware of their legal significance. He claimed back the money he had paid.
Held: A contract . .
Cited – University of Wollongong v Merwally 22-Nov-1984
(High Court of Australia) Deane J said: ‘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 . .
Cited – Henderson v Folkestone Waterworks Co 1885
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. After payment, the House of Lords in the Dobbs case changed the law, and if calculated under the changed law the . .
Cited – In re Roberts 1905
A compromise made under a mistake of law can be set aside. . .
Cited – Baker v Courage and Co 1910
The plaintiff had owned a public house. On selling the leasehold to the defendants brewers, they had overpaid him by andpound;1,000. He deposited a sum at interest with the defendants. When he came to withdraw the last of the deposit (by coincidence . .
Cited – Derrick v Williams CA 1939
The plaintiff had accepted a payment into court on a basis that a Court of Appeal decision declared the law in a form which precluded the recovery of certain types of damages. Subsequently the House of Lords reversed the Court of Appeal decision and . .
Cited – Commissioner of State Revenue v The Royal Insurance Australia Ltd 7-Dec-1994
(High Court of Australia) A payment had been made under statute which was later repealed with retrospective effect.
Held: The monies paid under the retrospectively repealed statute had not been paid under a mistake of law at common law. . .
Cited – In re Hollis’ Hospital and Hague’s Contract ChD 5-Jul-1899
In October, 1898, a contract was entered into on behalf of the present trustees of Hollis Hospital for the sale of certain freehold property belonging to the hospital.
The property contracted to be sold formed part of certain property which . .
Cited – In re Downshire Settled Estates CA 1953
A scheme of arrangements was proposed on behalf of infant beneficiaries to three settlements. The object of the scheme was to avoid losses to the beneficiaries by reason of inheritance tax.
Held: The court rejected the contention that it had . .
Cited – Hazell v Hammersmith and Fulham London Borough Council QBD 1990
The issue before the courts was whether, in the absence of any express power authorising the Council to do so, the Council was within its power under s 111(1) of the Local Government Act 1972 to enter into certain swap transactions;
‘The fact . .
Cited – Kelly v Solari CEC 18-Nov-1841
Recovery was sought of money (pounds 200) paid an error of fact. There had been a life policy, but it had lapsed before the death of the life assured. The policy had been marked ‘lapsed’ but the marking had been overlooked.
Held: Where money . .
Cited – Lowry v Bourdieu 1780
A mistake of law was not a good ground for recovery of money paid in error. . .
Cited – Woolwich Equitable Building Society v Inland Revenue Commissioners (2) HL 20-Jul-1992
The society had set out to assert that regulations were unlawful in creating a double taxation. It paid money on account of the tax demanded. It won and recovered the sums paid, but the revenue refused to pay any interest accrued on the sums paid. . .
Cited – Brisbane v Dacres 1813
The commander of a naval vessel, HMS Arethusa, had paid to the Admiral in command a proportion of freight received for the carriage of publicly owned bullion on board the Arethusa in the belief that this was due to the Admiral as a matter of usage. . .
Cited – Lipkin Gorman (a Firm) v Karpnale Ltd HL 6-Jun-1991
The plaintiff firm of solicitors sought to recover money which had been stolen from them by a partner, and then gambled away with the defendant. He had purchased their gaming chips, and the plaintiff argued that these, being gambling debts, were . .
Cited – Wilson and M’Lellan v Sinclair 1830
Lord Brougham LC said that since Brisbane v. Dacres it had been considered an established point that a mistake must be ‘in the fact’ to allow recovery of money paid in error. . .
Cited – Hazell v Hammersmith and Fulham London Borough Council CA 2-Jan-1990
The authority entered into interest rate swap agreements, whose validity was challenged. The court considered what were the functions of a local authority within the Act. ‘We agree with the Divisional Court that in [section 111(1)] the word . .
Cited – Dixon v Monkland Canal Company 1831
Recovery of money paid in error of law. . .
Cited – In re Hallett’s Estate; Knatchbull v Hallett CA 1880
Where a trustee of a policy used money received from others to make payment of premiums on an insurance policy, they would be entitled to a lien on the policy. Where an asset was acquired exclusively with trust money, the beneficiary could either . .
Cited – Morgan Guaranty Trust Co of New York v Lothian Regional Council IHCS 19-Jan-1995
Money paid under error in law is repayable according to equity, and without statutory authority on the ground of unjustified enrichment. . .
Cited – Westdeutsche Landesbank Girozentrale v Islington London Borough Council; Kleinwort Benson Ltd v Sandwell Borough Council ChD 23-Feb-1993
A bank, having made payment under an void interest rate swap agreement to a local authority, was entitled to recover the payments made under the equitable doctrine of restitution. It would be wrong to allow the local authorities to enjoy an unjust . .
Cited – Regina v Inland Revenue Commissioners, Ex parte Woolwich Equitable Building Society HL 25-Oct-1990
The society challenged the validity of transitional provisions in the 1986 regulations on the ground that they were ultra vires. The House considered the specific presumption against double taxation, and also a power in general terms to make . .
Cited – Earl Beauchamp v Winn HL 1873
The rules in equity as to restitution after a payment made under a mistake of law apply as much to mistakes of fact as to mistakes of law. . .
Cited – In re Diplock CA 1948
S 26 of the Act of 1939 would operate to postpone the running of time in the case of an action at common law to recover money paid under a mistake of fact, and would likewise apply to an analogous claim in equity to recover money paid under a . .
Cited – Phillips-Higgins v Harper QBD 1954
A claim was made to recover monies due under a contract where the plaintiff had failed to realise that the balance was due to her, and by that mistake the action was concealed from her.
Held: Pearson J said: ‘But that is not sufficient. . .
Cited – Stirling v Earl of Lauderdale 1733
The maxim ignorantia juris non excusat did not apply only to the law of delict. . .
Cited – Kiriri Cotton Co Ltd v Dewani PC 1-Dec-1959
(Eastern Africa) A premium had been paid in consideration of the grant of a sub-lease of property contrary to the provisions of an ordinance. Restitution was ordered because payment had been made pursuant to a contractual obligation rendered void by . .
Cited – Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd HL 15-Jun-1942
A contract for the supply by the respondents of special machinery to be manufactured by them was treated as an ordinary contract for the sale of goods. It began valid, but suffered frustration by the outbreak of war.
Held: Lord Wright restated . .
Cited – In re Condon, Ex parte James 1874
The Trustee in bankruptcy has relevant duties as the Trustee as an officer of the Court. Such a Trustee would not engage in conduct which could be seen to involve an unfair use of that position, and ‘where it would be unfair’ for a trustee in . .
Cited – Regina v Tower Hamlets London Borough Council, ex parte Chetnik Developments Limited HL 1988
The House was asked whether a rating authority could refuse to repay rates which had been paid by mistake.
Held: ‘Parliament must have intended the rating authorities to act in the same high principled way expected by the court of its own . .
Cited – Deutsche Morgan Grenfell Group Plc v The Commissioners of Inland Revenue, HM Attorney General ChD 18-Jul-2003
The taxpayer sought to bring an action for restitution by the revenue of sums paid under a mistake of law. Under the Metallgesellschaft decision, rights of election for recovery of overpaid tax applied only between UK resident companies.
Held: . .
Cited – Niru Battery Manufacturing Company, Bank Sepah Iran v Milestone Trading Limited CA 23-Oct-2003
The claimant had contracted to purchase lead from some of the defendants. There were delays in payment but when funds were made available they should have been repaid. An incorrect bill of lading was presented. The bill certified that the goods had . .
Applied – Margaret Brennan v Bolt Burdon, London Borough of Islington, Leigh Day and Co QBD 30-Oct-2003
The claimant had sought relief for the injury to her health suffered by condition of her flat. The legal advisers had settled the matter, thinking that the claim had not been timeously served. The defendant appealed an order that the compromise was . .
Applied – Pankhania v The London Borough of Hackney ChD 2002
A brochure listing properties to be sold at auction decribed the property as being subject to a terminable licence. In fact it was a secure tenancy. The question arose as to whether a misrepresentation of law could found a cause of action.
Distinguished – S v S (Ancillary Relief: Consent Order) FD 4-Mar-2002
An order for ancillary relief had been made by consent. Later the House of Lords issued a judgment which changed the law which had been the basis of the decision to accept the settlement. The wife now sought to set aside the consent order, and . .
Cited – Oliver Ashworth (Holdings) Limited v Ballard (Kent) Limited CA 18-Mar-1999
In order for the landlord to claim double rent where a tenant held over unlawfully after the tenancy was determined, the landlord must not do anything to indicate that the lease might be continuing, for example by denying the validity of break . .
Cited – George Worme Grenada Today Limited v The Commissioner of Police PC 29-Jan-2004
PC (Grenada) The defendant was editor of a newspaper which carried a story severely defamatory of the prime minister. He was convicted of criminal libel, and appealed.
Held: The appeal was dismissed. The . .
Cited – DFS Furniture Company Plc v Commissioners of Customs and Excise CA 16-Mar-2004
The taxpayers said that the Commissioners’ assessment to VAT was out of time, and appealed a finding that it was not. They said that time should run from the point at which the Commissioners knew the facts upon which the assessment was based. The . .
Cited – Brennan v Bolt Burdon and Others, London Borough of Islington, Leigh Day and Co CA 29-Jul-2004
The claimant sought damages for injury alleged to have been suffered as tenant of a house after being subjected to carbon monoxide poisoning, and also from her former solicitors for their delay in her claim. The effective question was whether the . .
Cited – Inland Revenue and Another v Deutsche Morgan Grenfell Group Plc CA 4-Feb-2005
The company sought repayment of excess advance corporation tax payments made under a mistake of law. The question was the extent of the effect of the ruling in Klienwort Benson, in particular whether it covered sums paid as taxation, and how the law . .
Cited – National Westminster Bank plc v Spectrum Plus Limited and others HL 30-Jun-2005
Former HL decision in Siebe Gorman overruled
The company had become insolvent. The bank had a debenture and claimed that its charge over the book debts had become a fixed charge. The preferential creditors said that the charge was a floating charge and that they took priority.
Held: The . .
Cited – Halpern and Another v Halpern and others ComC 24-Mar-2006
The deceased parents, being orthodox Jews, had first made standard wills and then made provision accoding to Jewish law. A dispute after the second death was referred to a Beth Din arbitration. After an initial resolution, various distributions were . .
Cited – Meretz Investments Nv and Another v ACP Ltd and others ChD 30-Jan-2006
The applicant challenged the exercise of a power of sale under a mortgage, saying that the mortgagee’s purposes included purposes not those under the mortgage. The parties had been involved in an attempted development of a penthouse.
Held: The . .
Cited – Smithkline Beecham Plc Glaxosmithkline UK Ltd and Another v Apotex Europe Ltd and others (No 2) CA 23-May-2006
The parties to the action had given cross undertakings to support the grant of an interim injunction. A third party subsequently applied to be joined, and now sought to take advantage of the cross undertakings to claim the losses incurred through . .
Cited – Lloyds Bank Plc v Independent Insurance Co Ltd CA 26-Nov-1998
The bank had made an electronic transfer of funds for a customer in satisfaction of that customer’s proper debt, but it was done under a mistake of fact as to the cleared status of funds received.
Held: The appeal was turned down. The bank was . .
Cited – Deutsche Morgan Grenfell Group Plc v Inland Revenue and Another HL 25-Oct-2006
The tax payer had overpaid Advance Corporation Tax under an error of law. It sought repayment. The revenue contended that the claim was time barred.
Held: The claim was in restitution, and the limitation period began to run from the date when . .
Cited – Awoyomi v Radford and Another QBD 12-Jul-2007
The claimant sought damages from the defendant barristers who had represented her in criminal proceedings. They had not passed on to her the statement made by the judge in chambers that if she pleaded guilty he would not impose a sentence of . .
Cited – Sempra Metals Ltd v Inland Revenue Commissioners and Another HL 18-Jul-2007
The parties agreed that damages were payable in an action for restitution, but the sum depended upon to a calculation of interest. They disputed whether such interest should be calculated on a simple or compound basis. The company sought compound . .
Cited – Somerville v Scottish Ministers HL 24-Oct-2007
The claimants complained of their segregation while in prison. Several preliminary questions were to be decided: whether damages might be payable for breach of a Convention Right; wheher the act of a prison governor was the act of the executive; . .
Cited – Fender (Administrator of FG Collier and Sons Ltd) v National Westminster Bank Plc ChD 26-Sep-2008
The administrator sought declarations as to whether to treat the bank as a secured or unsecured creditor.
Held: The court directed the Administrator to recognise the Bank as a secured creditor, as if the Deed of Release had never been . .
Cited – Kommune and Another v DEPFA Acs Bank ComC 4-Sep-2009
Local authorities in Denmark sought to recover sums paid to the defendant banks for swap trading, saying that the payments had been outwith their powers. . .
Cited – Brazzill and Others v Willoughby and Others CA 27-May-2010
The regulated bank Kaupthing Singer and Friedlander Ltd (KSF) was in financial difficulties. The Bank of England required KSF to credit to a trust account all future deposits. KSF later went into insolvency. Some deposits had been credited to the . .
Cited – Jones v Churcher and Another QBD 18-Mar-2009
Cited – The Law Debenture Trust Corporation Plc v Elektrim Sa and Another ChD 20-Jul-2009
Cited – Bloomsbury International Ltd and Others v Sea Fish Industry Authority and Another QBD 24-Jul-2009
Parties challenged the legality of a levy imposed by the defendant for the purposes of supporting the sea food industry. They said that a levy imposed on fish products imported to the UK was beyond the powers given by the 1981 Act, and was contrary . .
Cited – Haugesund Kommune and Another v Depfa Acs Bank CA 27-May-2010
Cited – Littlewoods Retail Ltd and Others v HM Revenue and Customs ChD 19-May-2010
The claimants had overpaid large sums of VAT over several years, and been, eventually, refunded, with simple interest. The claimants now said that the interest should have been compounded. The revenue contended that such a claim was excluded under . .
Cited – Deutsche Bank Ag v Vik and Another ComC 19-Mar-2010
Cited – Franked Investment Group Litigation Test Claimants v Inland Revenue and Another CA 23-Feb-2010
Cited – Marine Trade Sa v Pioneer Freight Futures Co Ltd Bvi and Another ComC 29-Oct-2009
The parties stood to make substantial losses against each other under contracts for differences after the dramatic fall in the freight market in the financial turmoil of late 2008. . .
Cited – Thin Cap Group Litigation, Test Claimants In v Revenue and Customs ChD 17-Nov-2009
Cited – Test Claimants In The Franked Investment Income Group Litigation v Inland Revenue SC 23-May-2012
The European Court had found the UK to have unlawfully treated differently payment of franked dividends between subsidiaries of UK companies according to whether all the UK subsidiaries were themselves UK based, thus prejudicing European . .
Cited – Aspect Contracts (Asbetos) Ltd v Higgins Construction Plc SC 17-Jun-2015
Aspect had claimed the return of funds paid by it to the appellant Higgins under an adjudication award in a construction contract disute. The claimant had been asked to prpare asbestos surveys and reports on maisonettes which Higgins was to acquire . .
Cited – Revenue and Customs v The Investment Trust Companies SC 11-Apr-2017
Certain investment trust companies (ITCs) sought refunds of VAT paid on the supply of investment management services. EU law however clarified that they were not due. Refunds were restricted by the Commissioners both as to the amounts and limitation . .
Cited – Prudential Assurance Company Ltd v Revenue and Customs SC 25-Jul-2018
PAC sought to recover excess advance corporation tax paid under a UK system contrary to EU law. It was now agreed that some was repayable but now the quantum. Five issues separated the parties.
Issue I: does EU law require the tax credit to be . .
Lists of cited by and citing cases may be incomplete.
Updated: 31 October 2021; Ref: scu.135173