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NO CONSIDERATION: RESTITUTION AFTER VOID CONTRACTS

PETER BIRKS*

Those who transfer value under void contracts have no remedy in contract and little to expect from the law of property, since nullity does not in general prevent property passing. However, it has been recently held in litigation following void interest swaps that the value transferred under avoid contract, because itpasses for "no consideration", becomes an unjust enrichment of the recipient at the transferor's expense, so that restitution must follow even where the void contract has been fully executed on both sides.

Restitution for "no consideration" is alien to the law of unjust enrichment in the common law. In particular: (i) parties to a filly executed contract, though it be void, have no substantial reason for restitution; (ii) "failure of consideration," properly understood, can explain all cases of restitution where the defendant has not completed his part; (iii) cases advanced as warranting a new ground for restitution, called "no consideration" anddistinctfrom failure of consideration, turn out on closer inspection not to go beyondfailure of consideration; (iv) the new doctrine createsan unacceptable discontinuity with the past, unsettling the foundations on which leading cases have been argued and decided, departing from the previous treatment of void contracts and contradicting the leading treatise on restitution. These arguments notwithstanding, it will be true that in a jurisdiction which allows restitution for mistake of law, the results illegitimately attained through "no consideration" will be largely attainable through mistake.

Nevertheless, the further progress of "no consideration" should be resisted because it constitutes a standing invitation to borrow the language of civilian systems ("sine causa", "sans cause", "ohne Rechtsgrund), and civilian terminology can only do harm if it is imported without civilian substance. -

INTRODUCTION

One context in which the law of unjust enrichment is frequently invoked is, broadly speaking, the mopping up operation which is often necessary after ineffective contracts. Benefits may have been conferred under a contract

* Regius Professor of Civil Law, All Souls College, Oxford.

196 WESTERN AUSTRALIAN LAW REVIEW [VOL 23

which has been terminated for breach or by frustration or under a contract which is unenforceable or voidable or void. It then falls to the law of unjust ~ ~ enrichment to regulate the parties' rights to restitution. The principles to be ' 1 applied are now becoming better understood.' One key concept is failure of , consideration and, among a number of questions which continue to puzzle, the one which perhaps causes most trouble is how to handle the situation in :

which benefits have passed both ways. The common law has traditionally given a peremptory answer: the consideration must fail totally or, in other words, if the plaintiff received some benefit, he could not sue at all. As we shall see, that rigorously simple stance has now to be aband~ned.~ A single principle making counter-restitution a condition of restitution must be forged from a better understanding of the rationale of the traditional requirement of total failure and the long established practice of the courts in relation to rescission.

It is tolerably clear, if illegality is put on one side, that the principles, in their main lines, can be developed to apply to all species of ineffectiveness. 1 ' However, void contracts raise particularly difficult questions. Halsbury 1 1 remarks that there is "singularly little authority on the recovery of property 1 transferred or money paid under a contract which is ... merely void and not illegal."' Despairing of authority, the writer then turns to reason: "Logically, ~ if such contracts were void no rights should arise under them and anything , transferred should be recoverable.'' It is not clear what premiss necessitates ~ the deduction. All the difficulties, of scarce authority and unexplored logic, ~1 have recently been brought to the surface in important litigatioa4 Those 1 difficulties and that litigation form the subject of this paper.

1. R Goff & G H Jones TheLaw of Restitution 3rd edn (London: Sweet & Maxwell, 1986) 1 52-55,369-374,424-511; G H Treitel The Law of Contract 8th edn (London: Sweet & Maxwell, 1991) 926-937; A Burrows The Law of Restitution (London: Butterworths, 1993) 250-321; P Birks An Introduction to the Lmu of Restitution rev 1st edn (Oxford: OUP, 1989) 219-264; P BirksRestitution: The Future (Sydney: Federation Press, 1992) 85-100.

2. Professor Arrowsmith's account of this field takes a strong line, allowing the defence of change of position to displace total failure: S Arrowsmith "Ineffective Transactions and Unjust Enrichment: AFrameworkforAnalysis"(1989)9LS 121,134-135 and"1neffective Transactions, Unjust Enrichment and Problems of Policy" 119891 9 LS 307, esp 317.

3. Halsbury's Laws of England vol9 (4th edn 1974) )440 (nothing additional in the 1993 supplement).

4. It is right to record that this was anticipated by an unpublished paper by E O'Dell (TCD) which argued that nullity of contract was itself a ground for restitution, thus taking essentially the same position as Hobhouse J in the judgments about to be discussed: E O'Dell "Restitution and Ultra Vires Contracts" Society of Public Teachers of Law, , Restitution Section (Oxford, Sept 1992).

i

DEC 19931 RESTITUTION AFTER VOID CONTRACTS 197

VOID CONTRACTS: SETTING THE SCENE

Two parties make a contract which subsequently turns out to be void. When the nullity is discovered, one party, whom we may for convenience refer to as the plaintiff, has already performed. In the usual case his grievance will be that the other party, the defendant, has received value which he was intended to have only in exchange for a performance which has in the event materialised incompletely or not at all.

The plaintiff has no remedy in contract. Nor is there much hope for him in property. It is certain that under an illegal contract whatever property is intended to pass does pass.5 It would be difficult to defend a different rule for contracts which are void but not illegal. Although it is dangerous to generalise, it seems on the whole that the rule is not different. It is, for example, no less certain that property passes under a wager which is void by reason of section 18 of the Gaming Act 1845 (UK).6 The same was true of contracts rendered void by the Infants Relief Act 1874 (UK).' On the other hand a mistake can be so fundamental as to prevent the passage of property in money or other things: and the purported execution of a contract which is void for mistake will not pass the property in the subject-matter to the re~ipient .~ There are occasional indications that, even in cases in which the legal property passes, equity will treat the new legal owner as holding on trust for his transferor or subject to a lien in his favour.1° If that is so, the transferor will be able to assert an equitable proprietary right of the same nature in substitute assets into which he can trace the value of those which were transferred. It is, however, extraordinarily difficult to construct a rational argument that would allow equity to contradict the law in this way. In relation tornistake, it is possible, just, to distinguish different degrees of fundarnentality, and that difference of degree serves to keep contradiction at bay. There are no degrees of nullity. If the law says that under a certain void contract property passes, attempts to argue, in effect, that equity simply takes the opposite view should be regarded with suspicion.

5 . Singh v Ali [I9601 AC 167; Belvoir Finance Co Ltd v Stapleton [I97111 QB 210. 6. Lipkin Gorman v Karpnale Ltd [I9911 2 AC 548, Lord Templeman, 562; Lord Goff, 574-

577; Bridger v Savage(1885) 15 QBD 363, Bowen LJ, 367. See also p 221 infra. 7. Pearce v Brain [I9291 2 KB 310; Stocks v Wilson [I9131 2 KB 235. 8. R v Ilich (1987) 162 CLR 110. 9. Cundy v Lindsay (1878) 3 App Cas 459. More doubtful is Branwhite v Worcester Works

Finance Ltd [I9691 1 AC 552, on which see p 225 infra. 10. Sinclair v Brougham [I9141 AC 398. So also Westdeutsche Landesbank Girozentrale v

Islington LBC infra n 19.


Contract and property thus hold out little hope. The law of unjust enrichment has more to offer. We have already noticed that the ground for restitution which dominates this context is failure of consideration. Another possibility is mistake. On some facts, but not on all, these two grounds may both be available.

If the claim is made on the ground of failure of consideration, there will be no problem in the case in which the plaintiff has received nothing at all from the defendant. If, however, he has received part of the performance which he contracted for, the defendant will object that the cause of action for failure of consideration requires that the consideration must have failed totally. The plaintiff then has two possible arguments. He may show that the benefit which he has received is not a relevant benefit. This argument in the nature of things will always be confined to rather special facts. There are, however, some cases in which the courts have adhered to the requirement of total failure but have discounted some benefit which the plaintiff has received." Alternatively he may argue that the requirement of total failure goes only to the issue of counter-restitution, obliging him, if he is to succeed in his claim, to restore to the defendant any benefit received from him under the same transaction. This is a strong argument, potentially of general application,12 but it will not carry the plaintiff very far unless he is able to establish a secondary point, namely that the giving back can be done in money if it cannot be done in kind. Usually a literal giving back in kind will be impossible.13

If the claim is made on the ground of mistake, in England, but not, for example, in Canada or Australia,14 the plaintiff will still need either to prove a mistake of fact or to argue for the removal of the bar to restitution for mistakes of law, an argument now almost certain to succeed. That hurdle past, the claim based on mistake has. the advantage that it does not encounter the dogmatic requirement that the plaintiff must have received nothing. It remains subject to the general requirement of counter-restitution.15 Hence, in

11. Birks An Introduction to the Law of Restitution supra n 1, 423424; Rowland v DivaN [I9231 2 KB 500; see further n 11 1. An extreme and somewhat puzzling case is Guinness plc v Saunders [1990] 2 AC 663, on which see P Birks "Restitution without Counter- Restitution" [I9901 LMCLQ 330.

12. See.further p 210 et seq. 13. Within the context of rescission the courts have recently shown a more liberal attitude to

pecuniary counter-restitution: O'Sullivan v Management Agency & Music Ltd [I9851 QB 428.

14. Air Canada vBrirish Columbia (1989) 59 DLR (4th) 161; DavidSecurities Pty LtdvCBA (1992) 175 CLR 353, on which see pp 219 & 229 infra.

15. See further p 230 infra.


the case in which he has received some benefit from a partial performance by the defendant, the plaintiff who can found on mistake can proceed directly to the argument that counter-restitution need not be made in kind.

None of this is deeply controversial, although it is not everywhere clear that the defendant will yet succeed in the arguments which he will wish to make. It is not clear, for instance, how far the courts will go towards allowing counter-restitution in money where it cannot be made in kind. However, a rare variation of the facts has recently raised a far more difficult question, which turns out to have consequences which go beyond restitution after void contracts. They touch the whole structure of the law of unjust enrichment. Suppose that when the nullity of the contract is discovered the plaintiff has not only performed but has received everything that he contracted for. The immediate reaction will perhaps be that he has on these facts no grievance and therefore no temptation to litigate. It is true that he has no obvious grievance at all. But he may have an opportunistic temptation to litigate if he realises that he made a bad bargain: the performance which he received was worth less than the performance which he made. Can he rely on the nullity of his supposed bargain to recover the value of his performance or, allowing for the obligation to make counter-restitution, the difference in value between his performance and that which he received?

This question is raised very starkly by a fact situation to which we shall have occasion to retwn.16 A retired businessman aged 60 and apparently in good health buys an annuity for the remainder of his life. He pays £250 000. One year later he has a heart attack and dies, having received, let us say, £30 000. It turns out that the contract was void. His personal representatives seek to recover £250 000 plus interest less £ 30 000 plus interest. Can they recover? If the answer is yes, the risks of the supposed contract will be exactly reversed. Had the annuitant lived to 102, the boot would have been on the other foot: the insurance company which sold the annuity would have quickly dusted off its books on the law of restitution.

In a series of cases of great complexity and involving enormous sums of money, Hobhouse J, in the Queen's Bench Division of the English High Court, has recently held that the answer is indeed yes. Where performances are made under a void contract, the voidness of the contract in principle gives rise to an automatic right to restitution, subject to special defences. The losing party under the supposed contract therefore becomes the winner in the law of restitution. The next section of this paper will sketch in the facts and

16. See pp 203 & 214 et seq ("The third argument").


reasoning in those cases. The subsequent parts will evaluate their doctrine, first as it concerns void contracts and secondly as it bears on the structure of the law of restitution as a whole. Although the argument is critical of Hobhouse J's central doctrine, his judgments cannot but attract profound admiration. Quite apart from their masterly treatment of the complex facts, they are perhaps the best and most explicit applications of the principle against unjust enrichment by any English judge. On many matters peripheral to the immediate concern of this paper, especially the defences of limitation, change of position and passing on, they make invaluable progress.

RESTITUTION IN THE SWAPS CASES

The cases before Hobhouse J concerned interest swaps which turned out to be void. The immediate task is therefore to outline the nature of an interest swap. There are many variations, but the structure is always basically the same. The business of this paper does not require more than a schematic account of that common structure. Two parties agree together that over a stated number of years divided into agreed accounting periods the first party will pay the second a fixed rate of interest, say 10 per cent, on a notional capital sum, say £25 million, and that on the same sum the second party will pay the first a floating market rate of interest determined according to a given formula. The sense in which the capital sum is notional is that it never actually changes hands. If the market rate rises above 10 per cent, the fixed rate payer will make a profit. If the market rate falls, the floating rate payer will be the winner. Transactions of this kind serve many purposes, from simple speculation to the management of debt and the hedging of liabilities affected by fluctuations in rates of interest and currency exchange."

Interest swaps are wagers but they are valid and enforceable. At common law wagers were not and are not void in themselves. They could be illegal in particular cases, depending on their content; and if they were illegal they would also be void. For the rest the general nullity of gaming contracts and wagers is due to the Gaming Acts 1845 and 1892 (UK). However, swaps are among the activities in the financial markets which, though they do fall within the notion of a wager, are withdrawn from the Gaming Acts by section 63 of the Financial Services Act 1986 (UK). They are accordingly governed by the common law and are therefore valid contracts.

17. For a brief account of their uses: MLoughlin"InnovativeFinancing in Local Government: The Limits of Legal Instrumentalism-Part I" [1990] PL 372,388408; and on lawyers' failure fully to understand them: "Part 11" [1991] PL 568,590-595.

DEC 19931 RESTITUTION AFTER VOID CONTRACTS 20 1

During the 1980's a large number of UK local authorities became heavily involved in interest swaps. Then came the bombshell. In Hazell v Hammersmith & Fulham London Borough Council ("Swaps l"),ls the House of Lords held that all these transactions were void as being outside the powers of local government. A restitutionary mopping-up operation began on a huge scale. Many cases were settled, but hundreds more were not. Litigation continues, certain lead cases having been selected.19 It is almost certain that in due course the restitutionary questions will have to reach the House of Lords before all those in the wings feel able to settle. So far, the two judgments which deal directly with those questions are the decisions of Hobhouse J in Westdeutsche Landesbank Girozentrale v Islington London Borough Council and Kleinwort Benson Ltd v Sandwell Borough Council ("Swaps 3")20 and Kleinwort Benson Ltd v South Tyneside Metropolitan Borough Council ("Swaps 4").21

Hobhouse J decided in these cases that, because the contracts were void, the losing party under the swap was entitled to restitution of the amount by which its payments to the winning party exceeded the payments made by the winning party to itself. This was equally true in cases of incomplete performance, where the discovery of the nullity interrupted an on-going swap in mid- term, and in cases of complete performance, where before the nullity was discovered the term had expired and all the payments due from each side had been made. The ground for restitution in both kinds of case was not, in the learned judge's opinion, failure of consideration but rather "absence of consideration" or "no consideration". It followed directly from the fact that the contracts were void that all payments made under them had been made for no consideration.

18. [I9921 2 AC 1. 19. At the time of writing (Nov 1993) the cases which have so far been decided are: Hazell

v Hammersmith & Fulham LBC ("Swaps 1") ibid; Kleinwort Benson Ltd v Glasgow DC ("Swaps 2") (unreported) Court of Appeal 18 May 1993; Westdeutsche Landesbank Girozentrale v Islington LBC and Kleinwort Benson Ltd v Sandwell BC ("Swaps 3") 91 LGR 323; Kleinwort Benson Ltd v South Tyneside MBC ("Swaps 4") (unreported) Queen's Bench Division 12 March 1993; Morgan Grenfell & Co Ltd v Welwyn Hafield DC ("Swaps 5") The Times 1 June 1993. The law reporters have been remarkably slow off the mark.

20. Ibid. Hobhouse J calls the single judgment in these 2 cases "Swaps 1" and the case immediately following, Kleinworth Benson Ltd v South Tyneside MBC, "Swaps 2". The numbering adopted here follows the practice of the editor of the Restitution Law Review (see (1993) RLR 119, 119-127) and is based on the assumption that as the list of swaps cases lengthens it will be convenient to have identified from the outset a strictly chronological list of the entire series.

21. Suprann19&20.


The claims to which he gave effect on this ground were seen by Hobhouse J as arising in the law of unjust enrichment. They were of two kinds: first, apersonal claim at common law, traditionally called an action for money had and received, and secondly, a claim in equity, based on tracing and secured by a lien over all the assets of the enriched party. The varying facts of the different swaps transactions before Hobhouse J also required him to consider the operation of the defences of limitation, change of position and passing on. This paper will not consider those matters but will confine itself to the central question whether, where value passes under a void contract, the right to restitution is properly described as arising on the ground of "absence of c~nsideration".~~

In terms of authority the successful claims were principally supported in this way. In Re Phoenix Life Assurance Company ( " P h o e n i ~ " ) ~ ~ and Flood v Irish Provident Assurance Company it was held that where a contract of insurance was void because beyond the powers of the insurance company the premiums could be recovered. In Sinclair v B r o ~ g h a m ? ~ where depositors had made void deposits with the ultra vires bank run by the BirkbeckBuilding Society, the Phoenix right was denied to them because, on facts involving what was, essentially a contract of loan, a non-contractual right of recovery would'have given them substantially the same as they expected under the contract and would thus make nonsense of the policy underlying the nullity of the contract. Having for this reason barred the depositors' personal claim to the amount received by the defendants, the House of Lords nevertheless allowed them to take that which traceably survived in the assets which the defendants still held. That claim did not subvert the policy behind the nullity of the contract, since it was not calculated to yield substantially the same measure of recovery as an action on the contract.

22. These matters now omitted will be considered in a second article, when the final outcome of this litigation is known.

23. ( 1 862) 2 J & H 441 ; 70 ER 1 13 1. Cf Re London County Commercial Reinsurance OfSice Ltd 119221 2 Ch 67, discussed at p 221 infra.

24. (1912) 46 Ir LT 214. 25. Supran 10. This case covers the situationsin which the party of full capacity suesthe party

of limited capacity. When the latter is the plaintiff, its position is stronger. The defendant cannot take advantage of the incapacity so that the inhibition of the Phoenix right to restitution discussed above does not come into play: Brougham v Dwyer (1913) 29 TLR 234; Bell Houses Ltd v City Wall Properties Ltd [I9661 1 QB 207; R v Breckenridge Speedway Ltd (1967) 64 DLR (2d) 488. The matter is not without continuing problems, although it is now of diminishing importance in ordinary company law.


The question for Hobhouse J was whether a Phoenix right to restitution of money paid out under an ultra vires interest swap was obstructed by the inhibition of that right in Sinclair v Brougham. He rightly held that it was not, there being a substantial difference between recovering one's own payments and compelling the other to continue paying.26 Even a claim in the first measure of restitution, value received, could not be said to be tantamount to enforcing the contract.27

THE ANNUITY CASES

The Phoenix claim, once steered round Sinclair v Brougham, might be thought to conclude the matter. But there was an additional problem. These cases didnot clearly cover the situation in which a plaintiff had received some or indeed all of what he expected under the supposed contract. The swaps plaintiffs had all received at least some of the expected counter-performance. Hobhouse J bridged the remaining gap by recourse to a series of cases on void annuities neglected in the literature of re~titution.~~ Between 1777 and 1854 grants of annuities and the creation of rent charges were subjected to a number of statutory controls by an Annuity Act.29 Failure to comply with these controls rendered the instrument void or voidable, depending on the particular omission. One of the statutory requirements was that a memorial of the constitutive instruments be registered in the High Court of Chancery within twenty days of their execution. Failure in that matter rendered the instruments null and void. But even where the omission was visited with nullity, the courts leaned in favour of a regime which in effect construed

26. This distinction is rejected by Arrowsmith "Ineffective Transactions, Unjust Enrichment & Problems of Policy" supra n 2,315. It is true that it did not operate in relation to the Infants' Relief Act 1874 (UK): Cowern v Nield [I9121 2KB 419mighthave been Phoenix to R Leslie Lid v Sheill [I9141 3 KB 607's Sinclair v Brougham: but the policy has to be differently shaded for the 2 species of incapacity.

27. On the first and second measure of restitution, see Birks An Introduction to the Law of Restitution supra n 1, 75-76; Birks Restitution: The Future supra n 1, 106-123. The distinction is complicated, but not overtaken, by the new defence of change of position.

28. Shove v Webb (1787) 1 TR 732; 99 ER 1348; Byne v Vivian (1800) 5 Ves Jun 604; 31 ER 762; Byne v Potter (1800) 5 Ves Jun 609,31 ER 765; Hornan vCooke (1800) 5 Ves Jun 622; 31 ER 772; Bromley v Holland (1802) G Coop 16; 35 ER 458; Hicks v Hicks (1 802) 3 East 16; 102 ER 502; Scu$eld v Gowland (1805) 6 East 241; 102 ER 1279; Davis v Bryan (1827) 6 B & C 651; 108 ER 591; Cowper v Godrnond (1833) 9Bing748; 131 ER 795; Churchill v Bertrand (1842) 3 QB 568; 114 ER 625; Huggins v Coates (1843) 5 QB 432; 114 ER 1313; Molton v Camroux (1849) 4 Ex 17; 154 ER 1107.

29. An act for registering the grants of life annuities; and for the better protection of infants against such grants: 17 Geo III c 26 (1777); re-enacted as the Annuity Act 18 13 by 53 Geo 1II c 141; repealed by 17 & 18 Vict c 90 (1854).


"void" as "~oidable" .~~ Many actions were brought for recovering the capital paid by way of

price for the annuity. The courts held that both where an annuity was void and where it had been avoided, the annuitant could recover that capital sum, even though he had received instalments of the annuity. When he claimed back his capital sum, it was a question whether he had to give credit for the instalments of income which he had received. There was initially some hesitation about this,jl but in Hicks v Lord Ellenborough CJ held that the defendant grantor of the annuity must be allowed to set off the instalments which he had paid.

It is, as we shall see, crucial to Hobhouse J's reasoning that these annuity cases cannot be explained on the ground of failure of consideration but only on the ground of the "absence of consideration" entailed by the nullity of the contracts in question. Once that proposition is secured, another follows without apparent difficulty: it can make no difference to the absolute absence of consideration in the eye of the law, and hence to the right of restitution which the nullity supports, whether the plaintiff has received part of what he paid for or all of what he paid for. This is the basis for the conclusion on the swaps facts that no distinction should be drawn between those where the discovery of the nullity interrupted a continuing sequence of payments in mid-term and those where the term had expired and all payments had been made before the nullity was discovered.

This difference, between the swaps which were interrupted in mid-term and the swaps which had been completely performed before their nullity was appreciated, is crucial to the argument of this paper. Restitution under all the interrupted transactions could and should have been explained on the basis of failure of consideration. Restitution of value which passed under the completed swaps cannot be so explained. It is accordingly the completed transactions which provide the acid test of the correctness of Hobhouse J's doctrine. In the writer's view there should have been no restitution at all in those critical cases.

30. Davis v Bryan (1827) 6 B & C 651; 108 ER 591. 3 1. Beauchamp v Borret (1792) Peake 148; 170 ER 1 10. 32. Supra n 28. But see also, after this case, Burdon v Browning (1809) 1 Taunt 520,522; 127

ER 935,936, where Lord Mansfield CJ seemed reluctant to accept the conclusion. The case is poorly reported.


FOUR ARGUMENTS AGAINST RESTITUTION FOR "NO CONSIDERATION"

This part will first argue that the doctrine that, subject to special defences, restitution follows automatically from the nullity of a contract, on the ground of absence of consideration, is unsound and that the law should revert to recovery based on failure of consideration. The same line has been already been taken in a short paper by burrow^.^^ The conclusion will then briefly turn to the question whether the alternative possibility of claiming on the ground of mistake has the effect of depriving these propositions of much of their practical consequence. Even if that is so, the correct proposition will nonetheless be that, where value passes under a void contract, the plaintiff will not be entitled to restitution, exceptional facts apart, unless he establishes by way of "unjust factor" (an ugly shorthand for a factor rendering an enrichment unjust and therefore subject to restitution) either a failure of consideration or a mistake or, in rare cases, a specific policy recognised by the law as requiring restitution.

It needs to be said at the outset that this argument is advanced with hesitation. One obvious reason is that it is impossible to differ from the very learned judgments of Hobhouse J without a sense of peril. Another is that there is no doubt that in almost every detail German law would have reached the same conclusions as he did.34 That shows if nothing else that if there is anything wrong with those conclusions it cannot be absolutely wrong. At most it can be wrong within the context of local choices between different possible approaches to the law of unjust enrichment. A third reason for trepidation is that the argument is obliged to differ not only from Hobhouse J but also from the greatest English authority on contract, for it would seem that Professor Treitel, although he does not use the language of "no consideration" and does not explicitly go to the length of supporting restitution in the crucial case in which the plaintiff has received all that he

33. A Burrows "Restitution of Payments made under Swap Transactions" (1993) 113 NLJ 480482.

34. D Reuter & M Maninek U~igercclrtfertigte Bereic/ro.~r~rg (Tiibingen: Mohr. 1983) 116- 133 (some exceptions at 134-135); and. on the question whether there are 2 independelit claims or 1 claim for the difference by the party who transferred more ("saldo theor!, "). 595-61 1: 0 Jauemig. P Schlechtriem. R Stiimer. A Teichmann 8: M Vollkoln~ner Biirgerliches Geser:hrrc,h 912-913 ad # BGB 8 12. 937 trtl #8 1 X BGB: D Mrdicu\ Schuldreckt I I , Besor~derer Teil 5th edn (Munich: Beck. 1997) 796-297.3 17-3 19. MOIC briefly, in English: K Zweigert & H Kotz AII 11rn.othcc~tio11 to Co~ril~trr~crtil~i~ L L I U rt.\ 2nd edn (Oxford: Clarendon, 1987) 578-579.614: B Dickso~l "The L;IW of Rrstii~~tio~l il l 111~

Federal Republic of Germany" (1987) 36 ICLQ 75 I . 773-771.


expected, does accept that a void contract provides a ground of recovery distinct from and additional to failure of c~nsideration.~~ Finally, there is a great deal at stake, more perhaps than meets the eye, since the whole structure and rationale of the law of restitution is put in issue.

1. The first argument: no substantial reason for restitution

The first argument is very broad. It is that, if we stand back from authority, there is in fact no compelling reason to allow a plaintiff to recover the value of his performance if he has received in exchange for it all that he expected. His ground forrestitution, if it exists, must be purely technical. The three great reasons why our law allows restitution in respect of a subtractive enrichment are these: that the plaintiff did not mean the defendant to have the enrichment, that the defendant was unconscientious in his receipt of the enrichment or that there is some policy transcending both the plaintiff's intentions and the defendant's conduct which requires that restitution be granted. Of these the third covers a miscellany of cases, the second is confessedly controversial, and the first breaks down into three different species: that the plaintiff had no intention whatever to enrich the defendant, that the integrity of his decision to transfer was impaired, and that his intention to enrich the defendant was qualified and, in the events which have happened, the conditionality thereby implied has not been purified.36

Where a plaintiff has transferred value under a void contract his intention to transfer may be relevantly impaired by a mistaken belief in the validity of the contract. We may for the moment leave that aside. His intention is also qualified: he intends to transfer but only in exchange for the other's performance. If he receives the other's performance, that initial conditionality is purified. It follows that, mistake aside, the party who has received full performance cannot rely on the "didn't mean it" family of reasons for restitution. Unconscientious receipt we may also leave aside for two reasons: first, factually the recipient will not generally in this situation have behaved unconscionably; and second, unconscientiousness on the defendant's part is irrelevant to the doctrine under discussion, in the sense that, if restitution were in any case based on his bad behaviour, the ground for

35. Treitel supra n 1,933,936 & 464 (gaming). 36. "There was no intent to enrich [the defendant] in the events which happened .... The

payment was originally conditional. The condition of retaining it is eventual performance. -Accordingly, when that condition fails, the right to retain the money must simultaneously fail." Fihrosa Spolka Akcyjna v Fairbairn Lawson Cornbe Barbour Ltd [I9431 AC 32, Lord Wright, 64-65.


restitution would be that behaviour and not "absence of consideration". Much the same applies to the family of policy reasons. If the ground of

recovery were a policy requiring restitution, it would not be absence of consideration. We shall have occasion to return to the subject of minors' contracts below but here we might illustrate this proposition by hypothetically supposing a regime under which a minor's contract was absolutely void. Under such a regime it would be intelligible if the law in addition held that the protection of minors required that any value which the minor transferred under such a contract must be given back even if he had obtained all that he wanted in exchange and even, in an extreme case, without a requirement that he make counter- restit~tion.~' That conclusion might be expressed in terms of the "didn't mean it" family of reasons, by saying that the integrity of a minor's decision to transfer is systematically impaired, or it might be expressed simply in terms of a protective policy transcending his capacity to make decisions. Either way, the result would not support a doctrine that restitution followed from the nullity of the contract. Again, in swaps cases involving local authorities, one might conceivably formulate a policy, in defence of the rule of law, that the authority must not give, receive or retain money outside its statutory powers. But if one enunciated such a doctrine, one would again be departing from the proposition that nullity in itself generated a right to restitution.

The case parallel to the fully executed void contract is the valid contract discharged by performance. It is true in that case that the contract has gone. But it is inconceivable that anyone could argue that the parties could unwind it by reclaiming the value transferred under it. There are two reasons. One is that all bargains would be subverted. But there is no need to get to that policy objection. Muchmore important is the fact that neither party can point to any reason for restitution. Each having received what he wanted, there is simply no unjust factor. This is so obvious that it hardly needs saying, but it vividly points up the difficulty of arguing in the case of the fully executed void contract that there is any substantial reason for restitution.

It is a serious matter to admit a ground for restitution which is not covered by any of the three broad rationalia identified above. it puts in question the structure which rests on their foundation. The consequence of accepting automatic restitution of value passing under void contracts will be

37. There are some states in the USA which follow such a rule: G E Palmer TI!<' L ~ I I I . of

Restif~ctior~ vol I (Boston: Little. Brown & Co. 1978) 291 in n I. Another good c\amplc of the same kind. though overtaken by social change. is provided h!. H ~ ' I . I I ! ~ I I I I I .

Charlesn~or~th [ 19051 2 KB 123 (protectiol~ of women fro~n "lnntriafe ht.ohillg").


either that that structure must be modified or that the proposition that the new ground does not fit must be falsified. One way in which it might be falsified might be to assert, within the family of policy reasons, that wherever the law pursues a policy sufficient to avoid a contract that same policy must cany through to restitution of value which has been transferred. In that way "void contract" would in itself become a policy ground for restitution. However, as we shall see, the cases present obstacles to that approach.38

In summary, the first argument has therefore been that the party who receives all that he expected under his supposed contract cannot, mistake aside, bring himself within the "didn't mean it" family of reasons for restitution. He may possibly on some facts be able to rely on unconscientiousness on the part of the other, but irrelevantly to the doctrine under consideration; and, similarly, if and so far as he can make out a specific policy requiring restitution in his favour notwithstanding the fact that he did mean to make the transfer, he will not be relying on the "absence of consideration" but on that specific policy. Failing a general doctrine that nullity always provides a policy reason for restitution, the claim based on "no consideration" must therefore be said to disclose no convincing or accepted justification for restitution.

2. The second argument: failure of consideration misunderstood

The second argument has to do with the nature of the cause of action in unjust enrichment called "failure of consideration". It is central to Hobhouse J's recourse to "absence of consideration" that, in his opinion, failure of consideration cannot explain the right to restitution even in a case in which a party to a void contract has received some though not all of what he expected. He takes the view that the void annuity cases, for example, cannot be explained as cases of failure of consideration even where the payments were interrupted in the lifetime of the annuitant. It followed that a swaps winner could not recover for failure of consideration where the nullity was discovered mid-term and brought the payments to a halt.

Hobhouse J advances two distinct reasons. The first is that "failure of consideration" supposes an initially valid contract supported by consideration. The second is that the cause of action for "failure of consideration" is, more fully and properly speaking, the cause of action for "total failure of consideration", and in the partially paid annuity or partially honoured swap

38. P 220 et seq.


there is no "total" failure, because the plaintiff has received some part of what he expected. Each of these reasons has to be considered rather carefully.

It is not right to say that there can only be a failure of consideration within the context of a valid contract. A failure of contractual reciprocation is only one example, admittedly a recurrent example at least in the common law, of failure of consideration in the sense in which that phrase is used in the law of unjust enrichment. The common law, because it uses the word "consideration" in two legal categories, contract and unjust enrichment, is systematically exposed to the danger of confusion. The error in Chandler v W e b ~ t e r , ~ ~ which was fought off in Fibro~a,~' originated in that danger. The idea expressed by the phrase "failure of consideration" in the law of unjust enrichment corresponds to the notion of qualified intent discussed above and is best elucidated by a paraphrase such as "failure of the basis of a transfer"

J

or "failure of condition". The judges who, in the void annuity cases, spoke of the consideration as having failed were not ~onfused.~ ' Thus a transfer made on the basis of the recipient's forthcoming marriage can be recovered if that consideration fails, that is, no valid marriage follows.42 And a payment made by way of a pre-contractual deposit "subject to contract" is correctly

I described as recoverable for failure of consideration if no contract follows.43 Many systems continue to use the Latin phrase "causa data causa non

secuta (things given on a basis, that basis not f~l lowing)".~~ That ground developed in Roman law precisely in the case in which there was a giving on

39. [I9041 1 KB 493. Goff & Jones supra n 1,449-451. The Chandler v Webster version of the confusionis virtually amirrorimage ofthe swaps version: "Amisconception that there could be no total failure of consideration unless the contract was void ab initio" Goff & Jones, id.

40. Supra n 36. 41. Seep216infra. 42. P v P [I9161 2 IR 400; Re Ames' Settlement [I9461 1 Ch 217. Cf Muschinski v Dodds

(1986) 160 CLR 583, Deane J, 618-621. 43. Chillingworth v Esche [I9241 1 Ch 97 struggles precisely because it was not yet possible

in 1924 for the common law to grasp the true nature of this cause of action. A similar fact situation is consensual rescission: Towers v Barrett (1786) 1 TR 133; 99 ER 1014. The problems of pre-contractual work, as in William Lacey (Hounslow) Ltd v Davis [I9571 1 WLR 932, will often answerto the same analysis. SeeBurrows supran 1,293-299; PBirks "In Defence of Free Acceptance" in A S Burrows (ed) Essays in the Law of Restitution (Oxford: Clarendon Press, 1991) 109-120.

44. The phrase comes from the title of Book 12.4 of JustinianlsDigest, "Concerning the action of debt (condictio) for things given on a basis, that basis not following". Scots law (which does not have a contractual doctrine of consideration) shows the exact equivalence of "cdcns" and "failure of consideration": see in particular the speeches of Lords Dunedin & Shaw in Cantiare Sun Rocco SA v Clyde Shipbuilding &Engineering Co Ltd I19241 AC 226.

2 10 WESTERN AUSTRALIAN LAW REVIEW [VOL 23

a basis but no contract, and some civilian systems rigidly exclude recourse to it where the failure of basis does consist in a failure of contractual recipr~cation.~~ In other words, for them the core of the cause of action in unjust enrichment for "failure of consideration" consists precisely of those non-contractual examples of its application which the common law regards as either peripheral or indeed outside its boundary.46

It may be that, if common lawyers cannot keep consideration in contract and failure of consideration in unjust enrichment securely apart, it will be necessary to rename the cause of action or to divide it between failure of consideration (contractual reciprocation) and failure of basis (non-contractual instance^).^' But there will still be only one idea, and that one idea certainly extends beyond transfers for a contractual exchange. The correct proposition is contained in one sentence of Goff & Jones: "The phrase 'total failure of consideration' can therefore be used in the context of restitutionary claims which are in no way dependent on the existence of a valid contract."@

Hobhouse J's second reason for switching from failure of consideration to absence of consideration was that there can be no claim for failure of consideration unless the failure be total. It is of course perfectly true that in the traditional language of the common law the cause of action has been dogmatically so described.49 However, this now needs to be handled with great caution. Since the law of restitution began to be studied as a single

45. R Zimmermann The Law of Obligations: Roman Foundations of the Civilian Tradition (Cape Town: Juta, 1990) 843. Cf Zweigert & Kotz supra n 34,579: "Nor is it a matter for the law of unjust enrichment [scil in German law] to determine how contracts are to be unravelled which were valid to begin with but were later rescinded on the ground of breach of contract or of fundamental change of circumstances: here it is the law of contract which controls not only the question whether the contract is rescindible but also how benefits conferredunder the contract have to be given back, thoughon this matter German law calls in aid some provisions of the law of unjustified enrichment" (notes and references omitted).

46. Hence, hodie haec condictio raraest ("today this kindof debt is rare") -"only a very small range of situations ... situations, essentially, in which the parties have come to some kind of arrangement which does not have the quality of an obligatory contract" Zimmermann id, 860-861. For the separate regime of Rucktritt (rescission of a valid contract) under 346361 BGB, see Dickson supra n 34,751,762-767.

47. This strategy is already contemplated by Burrows supran 1,253,320. He adopts thedevice of acquiescing, "unless the contrary is stated," in a usage which makes "failure of consideration" mean "failure of promised performance" (253). Such capitulations are bound in the end to cause more trouble than they save.

48. Supra n l ,55 . 49. Among countless examples, see the language of the speeches in Fibrosa Spolka Akcyjna

v Fairbairn Lawson Combe Barbour Ltd supra n 36, and the judgment of Kerr LJ in Rover Int Ltd v Cannon Film Sales Ltd [I9891 1 WLR 912.


category of our law, the requirement of "total" failure has been made to answer to some rationale. What is the reasoning behind it? In the situation, not relevant on our facts, in which a plaintiff who has terminated a contract for breach would otherwise have a free choice between an action for breach and an action in unjust enrichment, the requirement of total failure may have been intuitively relied upon to create a near monopoly for the contractual action.50 Outside that case, where there is no possibility of choice between different theories and measures of recovery, the only reason behind "total" appears to be the same as is expressed in the requirement of counter- restitution: there cannot be restitution without counter-restitution, there cannot be taking back without giving back. If that is right, the requirement of total failure will be satisfied if the plaintiff can give back or allow for any partial benefit which he has received. This point is made very clearly by Professor Treitel?

If A employs B for a lump sum, paid in advance, to paint A's house, and B abandons the job before it is finished, A cannot recover back any part of the payment: his only remedy is in damages. The reason for the rule appears to be that the law cannot easily apportion the contract price to the amount of work actually done by B. Where the apportionment is in fact easy, the law will allow partialrecovery: for example, abuyer who had paid in advance for 100 tons could get back half his money if only 50 tons were deli~ered?~

Following this line, the High Court of Australia has recently said: "In cases where consideration can be apportioned or where counter-restitution is relatively simple, insistence on failure or total failure of consideration can be misleading or confusing." And again: "In circumstances where both parties have impliedly acknowledged that the consideration can be 'broken up' or apportioned in this way, any rationale for adhering to the traditional rule requiring total failure of consideration disappear^."^^ Where, as in the swaps

50. The old American case ofBush v Canfield(1818) 2 Co 485 vividly illustrates the potential for conflict, as does Boomer v Muir (1933) 24 P (2d) 570; on the legitimacy of 2 theories of recovery giving 2 very different measures of recovery, see Goff & Jones supran 1,455; Burrows supran 1,265. Some systems insist on thematterbeing handledsolely incontract (seen 4 3 , though it does not necessarily follow that the 2 measures of recovery are not then allowed to co-exist.

5 1. Treitel supra n 1,927. 52. Ibid, fn 25: "WhincupvHughes (1871) LR 6 CP 78,61; Cf Ebrahim DawoodLtdv Heath

Ltd [I9611 2 Lloyd's Rep 512; CloughMill Ltdv Martin [I9851 1 WLR 111,117-1 18." To these examples should be added a hypothetical variation of Brougham v Dwyer supra n 25,504: An invalid lender brings an action against the borrower, not for money lent but for failure of consideration (non-repayment). No system could bar the claim for want of total failure if it happened that the lender had already received, say, 10%.

53. DavidSecuritiesPry Ltdv CBA supran 14; Mason CJ,Deane,Toohey, Gaudron,McHugh,


situation, the plaintiff has received money, there is no problem in making the I

necessary allowance. That is why the requirement of total failure caused no trouble in the old annuity cases. It is a question in other cases how far the giving back may be done in money.54

A number of points strongly support this analysis. One is that it is now realised that the old money grounds for restitution must apply equally to non- money enrichments, so that the claim by a party who has paid money but not received the benefits paid for must find a parallel in the case of one who has done work and not received the agreed payment;55 and, that being so, that it would be absurd to bar the claim in the second case merely on the ground that the plaintiff had received even a small percentage of the money due, it being so easy to allow for or return such a payment.56 A dogmatic requirement of total failure, unconnected to the requirement of counter-restitution, would I there be indefensible. Further, in so far as the cause of action based onmistake I

is not infrequently available as an alternative to failure of consideration, the explanation of "total" failure in terms of counter-restitution eliminates the danger of a senseless asymmetry between two species of unjust enrichment. Again, even in regard to benefits less easily given back or impossible to give back, courts of equity have not been reluctant to make a money allowance for1 a partial benefit received.57 And the Law Reform (Frustrated Contracts) Act 1943 (UK) threw over the requirement of total failure, requiring instead1 mutual restitution on the basis of a money valuation of non-money benefit^.^" That shows that valuation of incomplete performances, often difficult, is not, regarded as impossible.

JJ, 383. In Baltic Shipping C o v Dillon ("The Mikhail Lermontov") (1993) 11 1 ALR 2891 the court's treatment of failure of consideration was more mechanical but the issue was, overshadowed by a competing claim for damages. See the excellent note by K Barker "Restitution of Passenger Fare" [I9931 LMCLQ 291.

54. Cf Morris v Prefabrication Eng Co (1947) 160 F (2d) 779. 55. On this symmetry between money and non-money e ~ ~ h I n e n t S , see Birks Restitution:

The Future supra n 1 , 8 6 1 M).

56. So, eg, it couldnot have been a bar to the claim for work and materials in Lodder vSlowey [ 19041 AC 442 that the contractor who had been building the road and tunnel had received some part of the contractual remuneration. The same point can be made of Pavey &I Manhews Pty Ltd v Paul (1986) 162 CLR 221, which is now thought to be best explained as turning on failure of consideration: Burrows supra n 1,301; Birks supra n 43,105,109- 1 12. In Pavey, the plaintiff builders had indeed been paid part of the price of their work

57. Whincup vHughes supra n 52; cfAhvoodv Maude (1868) 3 Ch App 369. See also tower^ v Barren supra n 43.

58. BP Exploration C o (Libya) Ltd v Hunt (No 2 ) [I9821 1 All ER 925-978.986-992. C1 Treitel supra n 1,927; E McKendrick ''Frustration, Restitution and Loss Apportionment' in Burrows supra n 43, 146, esp 159-165.


? It requires to be emphasised that making allowances for incomplete

I performances received by the plaintiff raises questions at two separate levels,

( first where there are no difficulties in the valuation of that which the plaintiff has received or, simpler still, where what he has received can be given back exactly as received, and second where account of the incomplete performance which he has received can only be taken in money and there are difficulties of valuation. The interrupted swaps transactions do not involve problems on

I the second of these levels and they also do not involve any competition between remedies in contract and in unjust enrichment.

The better view nowadays is therefore likely to be that, even where a court decides that a benefit received by the plaintiff cannot be discounted, the receipt of an incomplete performance will not necessarily exclude restitution on the ground of failure of consideration. The most defensible position seems to be that the requirement of total failure will be satisfied if the partial benefit received by the plaintiff can to the satisfaction of the court be given back or allowed for in reduction of his own claim. Further, there will never be any problem in its being so given back or allowed for if it consists solely in the receipt of money.

An objection will certainly be made that reinterpretation of the requirement of total failure of consideration as belonging to the principle which requires counter-restitution will be productive of sharp andunattractive distinctions on the line between incomplete and complete performances. There will be the case of 99 per cent completion. Logic requires the line to be drawn between 99.999 and 100. It may be necessary to soften the line. De minimis non curat lex will do a certain amount. In cases of discharge by breach, where there is apotential choice betweenremedies in unjust enrichment and in contract, the line will be pulled back by the rule that an action in unjust enrichment can never be brought while the relations between the parties in regard to the value in question continue to regulated by the contract.59 In other cases, despite the absence of alternative remedies, it would not be impossible to develop a doctrine, mirroring the doctrine of substantial performance in contract, that a consideration which has been substantially fulfilled should not be regarded as having failed.

If these answers to Hobhouse J's objections to explaining the void annuity cases as based on failure of consideration are generally satisfactory, it follows that it is possible to explain the restitution which he allowed in the

59. Goff & Jones supran 1,31-32. The propositionmay have to bemore complex tocope with Miles v Wakejield Metro DC [I9871 AC 539; Wiluszynski v Tower Hamlets LBC [I9891 IRLR 259: G Mead "Restitution within Contract?" (1991) 11 LS 172.


case of every interrupted swap in the same way. The loser, the party who paid the larger amount while the payments went on under the void contract, recovers the payments made, making allowance for the payments received from the other; and the ground of his recovery is failure of consideration, the interruption of the term having left outstanding the fulfilment of the condition of his participation in the swap, namely that the payments, and with them the working out of the risk, should continue for a fixed time.

There remains the one case which cannot be reached by failure of consideration. Hobhouse J held that even where the term of the swap had run and all the expected payments had been made, the loser could put the whole transaction into reverse. Those are the facts which entail the invocation of "no consideration" as aground forrestitution distinct from failure of consideration. The reason is that, in the events which happened, the conditionality of both parties' payments had been purified.

3. The third argument: the annuity cases cannot bear the load

This argument deals with the case of the fully executed swap. All the others can be explained on the basis of failure of consideration. Although the annuity cases are crucial to restitution for "no consideration" after executed transactions, in fact they provide no warrant for recovery in that case.

The obvious parallel to restitution after a completely executed interest swap would be a case in which the grantor of the annuity was compelled to make restitution of the price after the death of the annuitant. Suppose, for example, that the annuitant died very soon after buying the void annuity and his personal representatives sought to recover the capital sum which he had paid. There is only one case of that kind. It is Davis v B r y ~ n . ~ " The annuitant's executrix lost. Hobhouse J discusses that case and dismisses it. He points out that there were three reasons for the decision. First, it was not in accordance with good conscience to wait and see how things turned out before claiming. Second, it was only for the grantor of the annuity to take advantage of the nullity. Third, a fully executed contract could not be rescinded. All these reasons are no more than attempts to ensure that the person who has suffered no failure of consideration shall not recover. Subject to what will be said below about mistake, there is a very good reason for that. It is to be found in the first argument above. The plaintiff who has received all that he expected under the contract has no substantial ground for restitution.

60. Supra n 28.

DEC 19931 RESTITUTION A m R VOID CONTRACTS

One way in which Hobhouse J seeks to discredit Davis v Bryan is by tarring it with the same brush as the now discredited doctrine in Seddon v NE Salt Company6' which barred rescissionof executedcontracts. But the reason why Seddon was always wrong was that the plaintiff seeking rescission of the conveyance could establish a reason for restitution. As a victim of misrepresentation he could properly say, as the law admitted when he sought to escape an executory contract, that his intention to transfer had been impaired. He thus had a ground for restitution in the "didn't mean it" family, and the rule in Seddon unreasonably inhibited its operation.

Another and less obvjous case which would help the cause of "no consideration" as aground forrestitution distinct from failure of consideration would be that in which the grantor of the annuity, finding that the annuitant was proving too long-lived, with the result that the payments-out now exceeded the capital sum received by way of price, was able on giving credit for that sum to recover back all that he had paid. That too would be an example of a plaintiff who, having received all the expected consideration for his performance, was nonetheless allowed to reverse the transaction. It could only be explained on the technical ground that there was in the eye of the law no consideration for his performance.

Among the annuity cases there are none which uphold that pattern of claim. On the Chancery side there is indeed one decision of Lord Eldon LC which appears to rule it and another, on which Lord Eldon relied, which assumed, without deciding, that such a claim was not admi~sible .~~ We have already seen that there were early doubts as to whether the grantor of the annuity could even set off the instalrnents which he h a d ~ a i d . ~ ~ Hicks v Hicks, which resolved those doubts, contains a statement by Lord Ellenborough CJ that "the sums paid on either side were money had and received by the one party to the other's use."65 That would cover our case, but it was said in a context in which the only question was whether the grantor could set off his payments against the grantee's claim to recover the price, not whether he could go further and counterclaim for any excess.

Finally, few of the judgments specify the ground of recovery, beyond the very general "money had and received to the use of the plaintiff," but

61. [I9051 1 Ch326. TheSeddon bartorescission was removed by s 1 o f theMisrepresentation Act 1967 (UK).

62. Bromley v Holland & Tyrell supra n 28,23 and in the decree, 24. 63. Byne v Porrer supra n 28. 64. Supra p 2M. 65. Supra n 28, 17.


where the ground is more narrowly specified it is always failure of consideration. In Scurfield v GowlanP Lord Ellenborough CJ and in Cowper v Godmond7 Lord Tindal CJ both spoke of the consideration having failed. In Re London Celluloid C ~ m p a n y , ~ ~ Cotton LJ expressed the opinion that the action in Davis v Bryan69 had been brought on that ground.

In summary, the second and third arguments have thus been that, if Hobhouse J hadnot taken an unduly restrictive view of failure of consideration, he would not have been able to say that the annuity cases required to be explained on the ground of "absence of consideration". And without "absence of consideration" he wouldnot have been able to allow restitutionin the cases in which the swap had run its full course. In all the other cases, where the term had been interrupted, it would have been proper to reach his conclusions through failure of consideration, the plaintiff not having received all that his own payments were made in order to receive and the conditionality of those payments therefore not having yet been purified.

4. The fourth argument: novelty and discontinuity

Reinterpretations and reformulations are the lifeblood of the law. But there must at the same time be continuity. This fourth argument seeks to show that Hobhouse J's innovation creates a discontinuity. The demonstration is unavoidably miscellaneous. It falls into three parts which consider, first, its relation to two recent leading cases, secondly, its absence from the case law on contracts void for otherreasons, and thirdly, the impossibility of reconciling it with the doctrine of the leading English textbook on restitution. On the other side of the scales, Professor Treitel does consistently take the view that value which passes under a void contract can be recovered, although it is doubtful whether any of his examples cover facts beyond the range of failure of consideration and, in particular, the crucial case in which the supposed contract has been fully executed and the plaintiff who seeks to recover the value of his performance has therefore received all that he expected.'O

66. Supra n 28. 67. Supra n 28, 228. 68. (1888) 39 Ch D 190,203. 69. Supra n 28. 70. Treitel supran 1,933,936, These and other passages will be considered in the paragraphs

which follow.


(i) Two leading cases

The decisions in Woolwich Equitable Building Society v InlandRevenue Commissioners (" Wo~lwich")~' and DavidSecurities Pty Ltd v Commonwealth Bank~fAustralia~~ would have been quite different if it had been thought that "no consideration" was a generally accepted ground for restitution. In the case of Woolwich this point is complicated but in the end not substantially affected by the fact that the phrase is indeed used, without being given much weight, in some of their Lordships' speeches.73 We shall return to that point in the next part.

Woolwich raised the question whether, outside the range of statutory remedies, a taxpayer has a restitutionary right to recover payments of an ultra vires tax. The answer, in both the Court of Appeal and the House of Lords, was yes. At both levels the question presented itself as a matter of public law involving the principle of legality in government and the Bill of Rights. The English Law Commission had been concerned with the same question.74 Writing subsequently in the Law Quarterly Review, Mr Beatson, the Commissioner primarily responsible, said:

Dissatisfaction and concern about the state of the law prior to the Woolwich decision had led the Lord Chancellor to ask the Law Commission in March 1990 to examine this area of law together with the mistake of law rule. The Commission formed the provisional view that there should be a general restitutionary right in respect of payments to public authorities which had been levied in breach of public law and was consulting on whether such a general right should be balanced by prudential safeguards. It also provisionally recommended the abolition of the mistake of law rule. The Law Commission's consultation paper ... did not consider payments made under void contracts, for example ultra vires swaps contracts. This was because in such cases the legally relevant cause of the payment is the erroneous belief in the existence of a valid contract and, if the contract is void, in principle money paid under it is recoverable as paid on a total failure of c~nsideration.~~

It is certainly true that the scope and nature of the Woolwich principle is open to discussion. As its title professes, Mr Beatson's article is largely concerned with that question, and others have also drawn attention to the

71. [I9931 AC 70 (HL & CA). 72. Supra n 14. 73. Supran71,LordGoff, 166; LordBrowne-Wilkinson, 197-198. Discussedby EMcKendrick

"Restitution of Unlawfully Demanded Tax" [I9931 LMCLQ 88.95-96. 74. Eng Law CommissionRestitution of Payments Made Under a Mistake ofLaw CP NO 120

(London, 1991). 75. J Beatson "Restitution of Taxes, Levies and other Imposts: Defining the Extent of the

Woolwich Principle" (1993) 109 LQR 401,40142.


diffi~ulties.~~ However, both the arguments leading up to that great case and the subsequent debates as to its correct interpretation would have been, and now will be, absolutely transformed by Hobhouse J's doctrine that apayment made under a void transaction and hence for no consideration is always recoverable. On the basis of his doctrine, the only question in Woolwich would have been whether that general right to restitution needed to be inhibited in a situation in which there was a danger of disrupting public finances.77 And among those cases which seemed to obstruct the Woolwich result those which did not entail any such danger would have seemedpatently indefen~ible.~~

Crucial questions after Woolwich have seemed to be whether its principle will in fact reach beyond the taxes and levies and catch other ultra vires receipts and whether, if so, it will even reach beyondpublic law. Green v Portsmouth Stadium L d 9 exemplifies facts on what has been thought to be the further edge of this controversial frontier. A greyhound stadium was subject to statutory restrictions on the prices which it was allowed to charge bookmakers for admission. The restrictions were backed by penal sanctions. It chargedmore than was permitted. A bookmaker failed to recover his excess payments. The reason, against the background of an assumption that restitution was not available for mistake of law, was that the restrictions were not intended to be a bookmakers' charter. That is to say, there was no protective policy requiring restitution. ~ot-having suffered a failure of consideration, the bookmakers could not therefore bring themselves within any of the reasons for restitution: no relevant impairment of the intent to pay, no unpurified qualification of that intent, and no policy requiring res t i tu t i~n .~~

Mr Beatson argues persuasively that the Woolwich principle does not reach this case. He points out that the inequality between the parties was not created by the state: "Rather it stemmed from the fact that the occupier enjoyed the economic or market superiority that flowed from its proprietary or possessory rights. But for the statute, it would have been able to charge

76. E McKendrick supra n 73, esp 96-98; P Birks "'When Money is Paid in Pursuance of a Void Authority' -A Duty to Repay?" [I9921 PL 580,587-590.

77. Cf Air Canada v British Columbia supra n 14 and Canadian Pacific v British Columbia (1989) 59 DLR (4th) 218, which draw a line between unconstitutional taxing statutes and valid taxing statutes misapplied, bamng restitution in the former case because of the degree of disruption.

78. See, eg, Twyford v Manchester Corp [I9461 Ch236, in which a stonemason who had been charged, ultravires, for entry to the defendant's cemeteries was denied restitution because he could not show duress. He had certainly paid "for no consideration".

79. [1953] 2 QB 190. 80. Supra p 206.

DEC 19931 RESTITUTION AFTER VOID CONTRACTS

whatever it wished for entry. The statutory limits in fact operated to limit the inequality rather than as its s~urce."~' But the doctrine now advanced by Hobhouse Jputs this in a quite different light. The excess must have been paid for "no consideration". The only way to defend the Green result becomes the not very satisfactory argument, present in the case itself, that the intention of the statute was that the restriction should be sanctioned by, and only by, criminal proceedings.

It will be apparent from the preceding paragraphs that "no consideration" also bears directly on the debate which has been going on in many jurisdictions about the rule barring restitution for mistake of lawqg2 The elaborate judgments of the High Court of Australia in David Securities Pty Ltd v Commonwealth Bank of A ~ s t r a l i a ~ ~ wrestle with that problem and conclude that Australian law does not recognise that bar. David Securities had paid large sums of excess interest to the Commonwealth Bank under a term of a contract which was void. The contract itself was valid, but David Securities was unaware that statute avoided the particular term, which had purported to oblige them to make good to the Bank certain payments of tax which the legislature intended to fall on the Bank. Subject to a remission to the trial court to resolve some outstanding questions of fact, the High Court decided that those payments were recoverable although the mistake was either of law or at best of mixed law and

In this case, and indeed in countless others involving mistakes of law, the debate would have had to start from a quite different point if payments for

8 1. Beatson supra n 75,416. Beatson's preference is for a narrow and specifically public law version of the Woolwich principle, focusing on ultravires taxation though taking that term itself widely. He admits that fears of uncertainty might compel the compilation of a list, left open-ended, see 426. The legislative outcome must still be uncertain. As Beatson points out, there is some neo-Diceyan hostility to any doctrine peculiar to public law, 413; and, more ominously in view of the civilian leanings of Scots law to which "no consideration" will appeal, the Scottish Law Commission has given notice that it foresees the need to follow a different path, supra n 5,402, citing 71 2.32 and 1.4 of the SLC's 27th Annual Report (1992-1993), SLC No 139.

82. Canada:Hydro Electric Commission of Nepean v Ontario Hydro (1982) 132 DLR (3d) 193;Air Canada vBritish Columbia supran 14. South Africa: WillisFaberEnthoven (Pty) Ltd v Receiver of Revenue [I9921 4 SALR 202 (A), noted D P Visser "Error of Law & MistakenPayments: A Milestone" (1992) 109 SAW 177. England: supran 74. Australia: n 83.

83. Supran 14. In WA thematter has long beenconcluded by statute: Law Reform (Property, Perpetuities & Succession) Act 1962 s 24, replaced by Property Law Act 1969 s 125.

84. The court below had made this finding but in the High Court it was held that, because of - the way in which the case had been pleaded and argued, the question whether the payment had been made by reason of the mistake would have to be remitted to the trial judge: supra


no consideration were as a matter of general principle recoverable. Although the contract as a whole was valid, the payments made under the void term must then have been prima facie recoverable as having been made for no consideration. f i e assumption of the case was exactly the opposite, namely that, far from being prima facie recoverable, the payments were certainly irrecoverable unless the court could be persuaded to make an assault on arule which fifty years ago was regarded as ~nassai lable .~~

In Westdeutsche Lande~bank,~~ the principal swaps case, an argument was indeed unsuccessfully advanced that the effect of allowing recovery would be to sweep aside the mistake of law rule which Hobhouse J, though evidently sceptical of its capacity to survive much longer, expressly accepted as binding upon him. In Woolwich, a similar argument was put forward and was accepted in principle by the Court of Appeal, which concluded that had the building society paid under a mistake of law -it had actually made no mistake at all - it would not have been able to re~over.~' This restriction was repudiated by the House of Lords,ss andrightly, because there was in that case a specific policy requiring restitution which would have been confounded if compelled to defer to mistake of law. That policy, whatever the doubts as to its susceptibility to later generalisation or transformation, was the need to uphold legality in government and, in particular, to insist on parliamentary authority for taxation. But in Westdeutsche Landesbankno such compelling policy is articulated, and the bar to restitution for mistake of law is thus given the go-by. It may indeed be ripe for demolition, but a doctrine which appears to achieve that result without even confronting it cannot but be suspect.

(ii) Other void contracts

Some wagers are illegal. With those we are not concerned. For the rest, the Gaming Act 1845 (UK), section 18, renders gaming and wagering contracts "null and void", and it expressly provides, inter alia, that no action may be brought in respect of winnings. It has been held that that additional provision extends only to the winner's actions.89 Hence, if the "no

85. "That a voluntary payment made under amistake of law cannot be recovered is, I should have thought, beyond argument at this period in our legal history" Sawyer & Vincent v Window Brace Ltd [I9431 KB 32, Croom-Johnson J, 34.

86. Supra n 19. 87. Supra n 71,98; Glidewell LJ, 101; Butler-Sloss LJ, 140. 88. Id, Lord Goff, 177; Lord Browne-Wilkinson, 198; agreeing withLordGoff's formulation,

Lord Slynn, 205. 89. Varney v Hickman (1847) 5 CB 271; 136 ER 881, Maule J. The plaintiff recovered £20

deposited with a stakeholder against the result of a trotting race. He had withdrawn from


consideration" theory were right, the loser, despite the completion of the wager, ought to be able to recover his payments out in every case. The parallels with a local authority interest swap which has run its course are evident. We have seen that a swap is a wager, in general saved from nullity by the Financial Services Act 1986 (UK),9O but void when made by local government.

In fact, the law does not allow restitution to the loser of an ordinary wager. In Lipkin Gorman v Karpnale Ltd, the House of Lords said that the payments out on each side are to be regarded as gifts unconnected with each other, voluntary and valid gifts, giving good title provided the payer has title to give.9t In the Court of Appeal, Nicholls LJ had cited Bowen LJ in Bridger- v Savage, where he said, "If a person who has betted pays his bet, he does nothing wrong; he only waives the benefit which the statute gives him, and confers a good title to the money on the person to whom he pays it."9? Richards v Stark makes a similar assumption, albeit sub ~ i l en t io .~~ Morgan v Ashcroji extends the bar to the recovery of overpayments made to a winner by mistake of fact.94

Professor Treitel cites Re London County Commercial Reinsurance O f j i ~ e ~ ~ in support of an argument that the normal rule actually favours the loser's right to recover.% In that case the premiums paid on marine insurance contracts which were held to be wagers were indeed recovered; but this was not after the payers had obtained all that they expected, for the risk had never been borne. It was a case of failure of consideration, explicitly so described." The true analogy is with P h o e n i ~ . ~ ~ The essential points in both cases are that,

I because the insurance company never bore the risk, the consideration totally

I failed, and equally important, the recovery of the premiums would not give

I the wager before the race was run. A deposit laid down in advance is still regarded as recoverable, provided it is reclaimed before it has been appropriated by the winner to the payment of the debt: Re Futures Indes [I9851 PCC 164.

90. See p 200 et seq. 91. Supra n 6, Lord Templeman, 562; Lord Goff, 574-577. 92. Supra n 6,367. 93. [I91 11 1 KB 296. Strictly speaking, the point did not arise since the bet. really an

investment speculation (nolongervoid. by virtue of the Financial Services Act. I986 (UK) s 63). included the peculiar term that even if the plaintiff lost he should recri\,r: hilch hi.; input. He sued toenforce that contractual duty to return the money paid inconnection \\ ith losing speculations. He failed. without any point taken as to a non-contractual li;tbilit!.

94. [1938] 1 KB 49. 95. Supra n 23. 96. Treitel supra n 1.464. 97. Supra n 23. Lawrence J. 85. 98. Supra n 23, as to which see p 202.


the plaintiff substantially the same as he expected under the void contract, which would make nonsense of the nullity. The plaintiff, London County, would not have won if the wager had been illegal. P 0 Lawrence J took care to show that it was not.

There is a crucial distinction between the case in which the plaintiff does not get what he paid for and the case in which he does get it as a matter of fact though as a matter of law the nullity of the contract means that there was no legal nexus between his getting it and his own performance. In the latter case his only hope of restitution in respect of his own performance is the technical appeal to "absence of consideration" since, substantially, the consideration has not failed. London County illustrates the former situation. The premiums were paid specifically for a legal obligation to bear the risk and that legal obligation never began to run.

The evidence of the Infants Relief Act 1874 (UK) appears to be against a general right to restitution under void transactions, though it may perhaps more fairly be described as ambiguous. Section 1, no longer law,99 made absolutely void all contracts for money lent or goods supplied and all accounts stated. Pearce v Brainl@'involved an executed contract of exchange falling within that section. The infant plaintiff had given his motorcycle for the defendant's car, which had revealed a defect in the back axle after about 70 miles of driving. Despite the nullity of the contract, the Divisional Court held that the plaintiff would only have been entitled to restitution if he could have shown that he had suffered a total failure of con~ideration.'~' The nullity of the contract therefore did not suffice in itself. If Hobhouse J's doctrine were correct it should not have been necessary to establish a fai l~re of consideration. The minor, having obtained the car for which he gave up his motorcycle, would have been entitled to restitution on the sole condition of counter-restitution.

Steinberg v Scala (Leeds) Ltd,'02 acase of acontract which was voidable, not void under the Infants Relief Act 1874 (UK), but which the infant plaintiff had avoided, supports the same conclusion. The plaintiff had bought shares and then surrendered them, thus escaping further calls. She could not recover the price because she had obtained the very thing which she wanted. Once she

99. No contracts with minors are now void. The Infants Relief Act 1874 (UK) has been "disapplied" by s 1 of the Minors' Contracts Act 1987 (UK).

100. Supra n 7. 101. Id, Swift J, 3 14, who did, however, say that he thought the conclusion which he was bound

to reach did not fit well with the logic of nullity. 102. 119231 2 Ch 452.


had avoided the contract and given up the shares, "absence of consideration", were it a good cause of action, would have allowed her to recover. Warrington LJ said: "In my judgment it cannot be said that there has been a total failure of consideration. She has in fact got the very thing she bargained for, and, not only that she bargained for, but the thing which every other applicant for shares in the company bargained for."'03

On the other hand, Professor Treitel rightly pointed out that the leading case behind these decisions, Valentini v Canali,lo4 does not entirely warrant the requirement of failure of considerat i~n.~~~ The infant plaintiff had bought furniture for £ 102. He had paid £60. The contract was void under section 1 of the Infants Relief Act 1874 (UK). The infant gave up the furniture and sought to recover his money. Lord Coleridge disallowed the claim on the ground that the infant had had the use of the furniture for some months and could not return that benefit. Later interpreted as requiring a failure of consideration, this case may actually support the view that, the contract being void, all that was necessary was counter-restitution. Valentini had received that which he expected under the void contract to buy furniture. Factually, he had suffered no failure of consideration. Yet, had he been able to give back the user which he had enjoyed, he would still, it seems, have been able to reverse the transaction. In short, though it took a strict view of counter- restitution, rigorously insisting on precise restitution in kind, which the infant could not make, the decision does incline towards the Hobhouse doctrine. This was lost sight of in the later cases.

There is, however, a crucial objection to using the true interpretation of Valentini v Canali in support of a doctrine of general restitution after void contracts, namely that such privileges as a minor has are more easily derived from his incapacity than from a general principle applying to void contracts. In other words, the ground for his restitutionary rights is to be found in his systematically impaired judgment or, if one rejects that notion, in the policy of protecting him from his inexperience. This fits within the families of reasons for restitution, either in the "didn't mean it" family or in the family of policy reasons. There is no need to draw on "no consideration." which does not fit. The cases discussed above, with the possible exception of \'ulerlrini v Canali, show that the judges had no sense of there being a relevant ground of restitution beyond failure of consideration. If one reacts to the strictness

103. Id, 461462. The judgments of Lord Stemdale MR and Younger LJ use sirnililr languugc. 104. (1889) 24 QBD 166. 105. In view of the supervening statutory reform (seen 99). it is necessary to return toan c:~rlicr

edition: G H Treitel The Law c!fCotrtrc~c~t 6th edn (London: Stevens. 198.7) -123.


of the results, one is reacting, not to the want of a doctrine of restitution for "no consideration", but to the inadequate weight given to the policy of protecting the young.

In support of the proposition, confessedly "not invariable", that value transferred under a void contract is in principle recoverable, Professor Treitel cites anumber of other cases. In Roverlnternational Ltd v Cannon Film Sales Ltd,'06 a joint venture agreement between the parties for the exploitation of the Italian cinema demand for films owned by Cannon was void because the plaintiff company had not been registered until six weeks after the contract for the venture had been made. But this was not a case in which both parties had completed their performances. Rover had paid money and done work but, except for possession of the films which the court was willing to discount as not being a relevant benefit, it had not received any of the consideration which it expected. Kerr LJ allowed Rover's claim on the alternative grounds of mistake and failure of considerati~n.'~~ Dillon LJ saw it as a "classic case" of mistake of fact. lo* Cannon, who had looked hard for a ground to terminate this joint venture, would have been surprised to know that they could have put it into reverse even after the full term of the joint venture had run. The court does not speak of "no consideration" and the facts of the case are such that it provides no authority for reversing completed transactions. The only difficult question is whether mistake, as opposed to failure of consideration, canjustify that kind of late reversal. That will be further considered at the end of this part.lng

In Craven-Ellis v Canons Ltd,'ln the plaintiff had acted as the company's managing director, but his contract was void because he had dealt with directors who were not directors: they had not taken up their qualification shares. He recovered the reasonable value of his work. But again this was not a case of reversing a completely executed transaction. On the particular facts it is difficult to see how Craven-Ellis could have recovered for failure of consideration. The reason is, not that he had received what he expected, because he had not, but rather that it is impossible, so to speak, unilaterally to annexe a consideration to the transfer of a benefit. If my neighbour is away, I cannot, by simply willing that he receive some benefit on a particular basis,

106. Supra n 49; Treitel supra n 1,933. 107. Id, Rover Int Ltd v Cannon Film Sales Ltd 923-924. 108. Id, 933. 109. See p 227 et seq. 110. [ 19361 2 KB 403; Treitel supra n 1, 936.

I DEC 19931 RESTITUTION AFTER VOID CONTRACTS 225

5 bring it about that benefit pass to him subject to that "consideration"."' In Craven-Ellis v Canons Ltd, the company was as a matter of law similarly beyond communication. It could not through its non-directors know of or agree the basis of Craven-Ellis's intervention in its affairs, no more than it

11 could freely accept them.'I2 The reason for restitution in this case should be regarded as mistake,

although in the judgments themselves, as is always the case with claims in respect of work, which are derived from assumpsit for quantum meruit and not for money had and received, the actional history tends to obscure the analysis of the unjust factor."' If Craven-Ellis had paid money under a

b supposed contract without obtaining the expected return, we would have no 1 difficulty in naming the possible causes of action.Il4 Because he worked

a without being paid, history makes it difficult for us to do so. His contract was void, but it is unnecessary to suggest that the ground of his restitutionary claim was either that nullity as such or, which comes to the same thing, the

I "absence of consideration" which reflects the brokenlegal nexus between his

I work and his expectation of payment. Craven-Ellis succeeded because (i) the i company was enriched at his expense: it was "incontrovertibly enriched"

because as a matter of commercial reality it would have had to have secured the services of a managing director from s~meone;"~ and (ii) he had conferred that enrichment under the mistaken impression that he had a valid contract for remuneration.

Similar observations have to be made in relation to two other cases which Professor Treitel cites under the heading "Money paid under a void ~ontract.""~ Branwhite v Worcester Works Finance Ltd1I7 was a case of a void hire-purchase contract. Branwhite wanted to buy a Sunbeam Talbot car on hire-purchase. He traded in his own car for £130 by way of deposit. Following the normal pattern of hire-purchase, the dealer then sold the car to the finance company, Worcester, who received the £130 by way of an allowance against the price which they paid to him. However, the dealer was engaged in a fraudulent project involving the falsification of terms as between the finance company and the hirer, Branwhite. The result was that,

11 1. Further discussed: Birks supra n 43, 116-1 17. An uncommunicated purpose is merely a "unilateral motive" and as such is irrelevant in law: see Zimmermam supra n 45,861.

112. Goff & Jones supra n 1,378. 113. Cf pp 227-228. 114. Cf the discussion of Pavey & Matthews Pry Ltd v Paul supra n 56. 1 15. Goff & Jones supra n 1,17-18,377. 1 16. Treitel supra n 1, 933. 117. Supra n 9.


although Branwhite received possession of the car, no hire-purchase contract between him and Worcester ever came into existence. There was no completed offer and acceptance, and Branwhite never obtained title to the car, which Worcester later repossessed and sold on. The House of Lords held that Branwhite was entitled to restitution of the £130. The case offers no support for any restitutionary right distinct from failure of consideration. The House of Lords explicitly rested Branwhite's claim on that g ro~nd . "~ The only remarkable feature of the case is that nothing was said at all about the three months' user of the car which Branwhite had had.l19

The other case is Bell v Lever Bros Ltd.I2O There the question was whether an employer was entitled to restitution of golden handshakes. It had paid substantial sums to senior employees in order to induce them to leave its service at the time of sensitive take-over negotiations. It had later discovered facts which would have allowed it to dismiss them peremptorily. Its claim to restitution failed. Professor Treitel, having observed that "[tlhe basic assumption made by the law is that money paid under a void contract can be recovered back", says of Bell, that "it was clearly assumed [by the court] that the money paid by the plaintiffs underthe compensation agreement would have been recovered back, had those agreements been void for mi~take."'~'

In fact, as is well-known, the House of Lords held that the contracts were good.I2' Had it reached the other conclusion, the claim to restitution could have been explained on the basis of mistake of fact. It is unnecessary to embark on the further question whether, had the court been able to hold the contracts void, it would also necessarily have been the case that there would

1 18. Id, Lord Moms, 572; Lord Upjohn, 581 (Lord Guest concurring); Lord Wilberforce, 590 (Lord Reid concurring).

119. Worcester took no point on this presumably thinking (though in retrospect there is a material distinction in that the user in this case was at their expense not at that of a third party) that the matter was concluded by Rowland v Diva11 supra n 11; Butterworth v Kingsway Motors [I9541 1 WLR 1286; and Warman v Southern Counties Car Finance Corp Ltd [I9491 2 KB 576. These cases are easily understood as signifying that the delivery of possession alone, when title or the right to acquire title is expected, never counts as a relevant benefit. See Burrows supra n 1,255-256: where the object has had to be surrendered to the true owner, the user cannot be said to have been obtained at the expense of the seller or hirer from whom the price is reclaimed; hence, in that case, but not in Branwhite v Worcester Works Finance Ltd supra n 9, no counter-restitution.

120. [I9321 AC 161. 121. Treitel supra n 1, 933. 122. The result might now be different, a duty having been discovered which obliges senior

employees to disclose their colleagues' wrongdoing: Horcal Ltd v Gatlond [I9831 IRLR 459, affirmed [I9841 IRLR 288; Sybron Corp v Rochem Ltd [I9851 AC 299.

1 DEC 19931 RESTITUTION AFTER VOID CONTRACTS 227

1 have been a total failure of consideration. It is enough for present purposes that the case is no authority, in relation to value passing under void contracts, for the existence of a cause of action in unjust enrichment distinct from both mistake and failure of consideration. In other words, the background

v assumption referred to by Professor Treitel was that the money would be recoverable on these facts if the contract turned out to be void; it was not that the money would be recoverable because money paid under a void contract is always recoverable, even where the party seeking restitution has received all that he expected.

(iii) The authoritative textbook i Goff & JoneslZ3 does not, of course, enjoy scriptural authority. Nor can

any book be immune to the sudden discovery of causes of action which it has failed to identify. Nevertheless, in the law of restitution this one book has a special status, since it is to it that the subject owes its recognition and its principled existence. It is therefore not a matter easily to be discounted that nowhere in the book is there any suggestion of a general right to recover value transferred under a void contract on the basis of "no consideration" as distinct from failure of consideration. In the leading American textbook, the "no consideration" doctrine is expressly rejected: "[A] basic premise of our law of restitution is that a payor or other transferor of a benefit is not entitled to restitution merely because there was no consideration for the payment."'"

A preliminary warning is necessary. The reader of the chapters in Goff & Jones on restitution after void contracts is likely to be slightly disoriented by the fact that they are heavily marked by the need to distinguish between value transferred in the form of money and value transferred in other forms. The reason for this is partly analytical and partly historical. Historically, the fact that claims in respect of services and goods were mediated through assumpsit for quantum meruit and quantum valebat, not through the action for money had and received, has meant that it is difficult to this day to pass through the differences of language entailed by that actional division to the relatively simple truth that the causes of action for enrichment received must be the same for all enrichments in whatever form.'25 Analytically, the old

123. Supra n 1. 124. G E Palmer The Law of Restitution vol 2(Boston: Little, Brown & Co, 1978) 12. This

remark is made in the course of acritiqueof BrandeisvNeustadtl(l860) 13 Wis 142 which not only treated an unenforceable contract as though it were void but also supposed that nullity would justify restitution.

125. Birks Restitution: The Future supra n 1.86-96. I I


actional division does correspond to a real difference in relation to the single issue of enrichment: it is much more difficult to answer the question whether a person has been enriched if what he has received is not money but some benefit in kind.'26 The factors which render an enrichment unjust and therefore subject to restitution are the same in whatever form the enrichment is received, but the question whether the defendant has been enriched is easy only when he has received money.

In our context there are two ways of overcoming the difficulties caused by the need of these chapters constantly to distinguish between money and other benefits received. One is to cling on to the proposition that, so far as unjust factors are concerned, whatever is said about money applies to all enrichments. The other is to concentrate on the swaps litigation, which only involved money. If one follows one or other of those rules one will see without difficulty that the insistent theme of these chapters is that the ground of recovery after a void contract is failure of consideration.lZ7 Moreover, since the focus of this paper has been above all on void contracts which have been completely executed, which provide the one case which failure of consideration can never reach, that theme has to be read in conjunction with the assertion, repeated in two places, that "where the plaintiff has received all that he has contracted for, he should not be entitled to reopen the transaction and recover his money."'28

THE ALTERNATIVE OF RESTITUTION FOR MISTAKE

Are the results of all that has been said above largely cancelled out by the law relating to mistake? Most void contracts are entered by mistake, both parties believing in their validity. It follows that, if and so far as the mistake is one which in principle gives rise to restitution, the plaintiff seeking restitution after a void contract has another string to his bow. The tests which determine whether a mistake is of a kind to trigger restitution have been progressively libkralised as the protection of the interest of recipients in the security of theirreceipts has been shifted to the defence of change of position. In many jurisdictions, as we have already seen in passing, it is no longer necessary to characterise the mistake as one of fact rather than law.129 And the mistake, whether of fact or law, need only be found to have been causative, rather than fundamental or, more extreme though in fact usually satisfied in

126. Goff & Jones supra n 1 ,2629 ; Burrows supra n 1.7-16. 127. Id, Goff & Jones, 369-374,375,385,390,394. 128. Id, 45,370 fn 6. 129. Supra p 219.


this kind of case, such as to give the impression of liability to make the transfer.I3O In short the mistake must have caused the transfer. A good deal of fine tuning remains to be done.

This is not the place to investigate these developments. Our question can be asked in the light of the most liberal position, leaving it to be obvious that in a system which adheres to a narrower doctrine of mistake -England and Wales must still formally be counted as such a one - the practical consequences of rejecting "absence of consideration" will be proportionately greater. Where a plaintiff can say that he transferred value under the mistaken impression that he was doing so under a valid contract which later transpired to be void, can he achieve the very results which this paper has argued cannot be achievedunder the flag of "absence of consideration"? Or, in other words, could a payor under a completed swap successfully switch to a claim based on the impairment of his decision to transfer, on the ground of mistake? If so, the discussion above may yet have been doctrinally sound but it will not have much practical consequence.

To maintain the continuity with the previous discussion, we must once again have to distinguish between incomplete and completed transactions. If the plaintiff has transferred value in the belief that he was doing so under a valid contract and has received either none or only part of the counter- performance, it is plain that he can say that he acted under a mistake which caused the performance and in that way he can reach the same conclusion as he could have reached on the basis of failure of consideration. Craven-Ellis v Canons LtdI3' and Rover International Ltd v Cannon Film Sales Ltd132 exemplify this point.

Since the effect of a mistake must be judged at the time that it is made, it would seem to follow that if the mistake causes the transfer where the plaintiff never subsequently receives a complete performance, it must equally cause it in the case of complete performance. There are some distinctions to be taken, though of doubtful materiality. The plaintiff may have performed before the defendant completed his part. That case is no different from the situation in which the defendant never completes. That is, the plaintiff at the time of his performance mistakenly believes both that he is liable to perform and that the other is also liable to make the return. It can make no difference to those mistakes that the other does in fact subsequently

130. BarclaysBankLtdv WJSimms & Son Ltd [I9801 QB 677,686-695; DavidSecurities Pry Ltd v CBA supra n 14,377-378; Goff & Jones supra n 1,87-90.

131. See pp 224-225. 132. See p 224.


complete. On the other hand, if the plaintiff perfoms after the other has completed his part, he acts because he believes that he himself is liable, the liability of the other being no longer in question. So here there is one mistake, not two. But this distinction does not matter: the one mistake is still a causative mistake.

In Barclays Bank Ltd v W J Sirnms Ltd, there is one restriction which Goff J puts upon recovery for mistake which, taken literally, might limit this effect. He says that there can be no recovery for mistake if the recipient from the mistaken transferor has given c~nsideration.'~~ However, that proposition needs to be explored before it can be relied upon at face value. It appears to be intended to prevent the undoing of valid exchanges and to prevent the law of restitution from subverting valid bargains,i34 but even in the context of such exchanges it must be handled with caution.i35 In the context of void contracts, no valid bargain being in issue, the mistaken party cannot be barred from restitution because he received something from the other, provided only that he canmake counter-restitution to the court's satisfaction. That is the rule which is applied where a contract is rescinded for a lesser mistake induced by misrepresentation: there is restitution subject to counter-re~tituti0n.l~~

In the upshot there seems to be no way, short of a dogmatic rule against reopening completed exchanges,i37 in which a liberal law of mistake can be

133. Barclays Bank Ltd v W J Simms & Son Ltd supra n 130,695. 134. Cf the explanation of Aiken v Short (1856) 1 H & N 256; 156 ER 1180 in Goff & Jones

supra n 1, 108-109; see also Bell v Lever Brothers Ltd discussed at p 226 supra. 135. There are certainly cases in which an excess payment ascertainable arithmetically can be

recovered without taking anything from the recipient's bargain, eg, David Securities Pty Ltd v CBA supra n 14,380-383; National Mutual Life Assoc ofAustralasia Ltd v Walsh [I9871 8 NSWLR 585, which was unnecessarily decided against the plaintiff because of a too literal application of the alleged rule.

136. Armstrong v Jackson [I9171 2 KB 822; MacKenzie v Royal Bank of Canada [I9341 AC 468; Spence v Crawford [I9391 3 All ER 27 1.

137. But such a rule would be indefensible, as a repetition of the error of Seddon supra n 61 - an inexplicable inhibition of the relief available to someone with a good reason for restitution.

Nonetheless there is one good argument against allowingrestitution in this situation on the ground of this particular kind of mistake, namely the transferor's mistaken belief in hisher liability tomake the transfer and the liability of the other to reciprocate. It is that after the execution of the supposed contract the force of this type of mistake is spent. For, although P would not have transferred but for his mistake, the supposed liability was no more than the means to the end which was desired. Just as Fibrosa Spolka Akcyna v Fairbairn Lawson Combe Barbour Ltd supra n 36 shows that a liability which is never performed should not bar restitution of money paid for the tangible benefits never received, so, vice versa, restitution should be barred when the tangible benefits have been received and only the antecedent liability was defective. Therefore, even though it is true, as is admitted in the text above. that the mistake will have been causative at the time of


[ x i

prevented from reaching, at least in the majority of cases, precisely the same counter-intuitive conclusions as were reached by Hobhouse J through the notion of restitution on the ground of absence of consideration. That conclusion does not subvert the reasons for restitution because, although so long as we discounted mistake we were forced to conclude that a void contract and the absence of consideration supposedly entailed by the nullity disclosed no reason for restitution, when we take account of mistake and assume that the plaintiff did act under a legally relevant mistake, there is an orthodox reason for restitution in the "didn't mean it" family.I3' However, although the foundational structure of restitution thus remains intact, it is undeniable that, at least in jurisdictions with a liberal regime for mistake, the refutation of Hobhouse J's novel doctrine will have few practical consequences. This is more than anything a consequence of the revolution which has overtaken thinking about mistakes of law. Whether it is a reason for restraining that revolution is a question which will require further thought.

i

WIDER STRUCTURAL IMPLICATIONS

It will at this stage perhaps be objected that, the practical consequences 1

of resisting Hobhouse J's doctrine being so small, the resistance might well be given up. To that there are a number of answers. First, it will not be in every case that mistake will cancel the effects of elimination of "no consideration." Secondly, it does not do to have a ground of restitution which cannot be fitted * within any of the families of unjust factors. The intelligibility of the law requires either that such a ground be eliminated or that the family tree be

F extended in some convincing manner. Then, thirdly and most importantly, there is a particular danger that if expressions such as "no consideration" and "absence of consideration" are, so to say, left lying casually around they may

d yet cause great and uncontrollable changes in the structure of the law of unjust enrichment.

The reason for regarding "no consideration" with respect and suspicion is that it creates a standing invitation to alter the language of our law of unjust enrichment in such a way as to make it resemble more closely that of civilian

L systems. Canada has already taken a large step in that direction. In handling cases in unjust enrichment it now regularly looks for an enrichment to one side, a corresponding deprivation in the other and the absence of a sufficient

the performance, that mistake cannot on this reasoning be relied upon when matters have progressed to apoint at which it can be clearly seen that the only prejudice which it might have entailed never in fact eventuated.

138. Seep 206 et seq.


juristic reason for the transfer.'39 The "unjust" enrichment at a plaintiff's expense thus becomes the enrichment "without sufficient juristic reason." Absence of reason is no more than the Latin "sine causa", the French "sans cause" and the German "ohne rechtlichen Grund." "No consideration7' or "absence of consideration", however much Hobhouse J may have meant to confine these phrases within the context of void contracts, can easily be taken to be the English for the same approach. The phrase has already cropped up in Woolwich, as a formula supposedly expressing the basis of therestitutionary right to recover ultra vires taxes.I4O There will be a foreseeable temptation to use it often, to escape every difficulty in pinning down more specifically the precise unjust factor which calls for restitution.

The use of anglicised civilian terminology will give rise to some trivial difficulties. If, for example, the question is asked why restitution for "no consideration" does not mean restitution of all gifts, the only possible answer will be that the common lawyer must get used to the fact that in this context donation is a sufficient consideration, a good "causa" in the civilian sense. However, the underlying problems will be more serious. Relatively young and unsystematic as it is, the common law of unjust enrichment has quite marked structural differences from the German law. It has a different relationship to the law of property, a wider range of restitutionary responses, including proprietary responses, and a different attitude to the grounds for restitution or, in other words, to the way in which an enrichment can be shown to be unjust.

As for the grounds for restitution, the common law asks for, and expects the plaintiff to show, a specific unjust factor, rooted in fact and not in legal abstraction, such as mistake, duress, failure of basis, and so on. The three great families into which, at a higher level of generality, these specific grounds fall were introduced in the last section.'41 At each level of generality the common law's answer is given in down-to-earth terms. No purpose would be served, indeed this useful approach would be subverted, if the attempt to pin down the abstract term "unjust" began to be conducted through another abstraction such as "absence of consideration" or, synonymously, "insufficient juridical cause". "No consideration" means "no consideration

139. Rathwell v RathweN [I9781 2 SCR 436, Dickson J, 455; Cf Sorochan v Sorochan [I9861 2 SCR 38, Dickson CTC, 44; Cf Peter v Beblow [I9931 3 WWR 337; P D Maddaugh & J D McCarnus The Law of Restitution (Ontario: Canada Law Book Co, 1990); G H L Fridrnan Restitution 2nd edn (Ontario: Carswell, 1992) 12-21. See also L D Smith "The Province of the Law of Restitution" (1992) 71 CBR 672.

140. Supra n 71, Lord Goff, 166; Lord Browne-Wilkinson, 197-198. 141. See p 206 et seq.


in the eye of the law". The addition makes plain its technical and abstract character. Severed from its theoretical foundations, the second abstraction could only become either afifth wheel on the coach or, worse, a cover to allow lawyers toreach incompletely analy sed con~lus ions . '~~Thi~ is not acomrnent on the nature or quality of the law of unjust enrichment in the civil law but only on the probable consequences of trying to introduce some civilian language while retaining the approach adopted hitherto by the common law.

These difficulties can be exemplified by reference to Wo~lwich. '~~ There were, as we have seen, real questions to be asked about the claim to recover ultra vires taxes. They concerned the weight to be given to the need to promote the principle of legality in government and the competing danger of disrupting public finances. In the absence of mistake or duress impairing the payor's intent to pay and of unconscientious behaviour on the part of the Inland Revenue, the matter could not be resolved except by asking, in the light of authority, whether the balance between those competing interests did or didnot yield apolicy which required that restitution bemade. And the same kind of inquiry will have to be made as later plaintiffs seek to extend the Woolwich principle beyond its immediate facts.'44

That inquiry cannot be furthered by asking whether the payment of an ultra vires tax is or is not made "for no consideration". "No consideration" will be a conclusion, and very probably a conclusion which, masquerading as a reason, will conceal the need for reasons. That is the real danger. The question whether an enrichment at the expense of the plaintiff is an unjust enrichment cannot be usefully mediated through a second tier of abstraction, but that second level of abstraction can become a powerful agent of mystification. If the common law is drawn into an enrichment law in which an enrichment is unjust when it is obtained or retained "without consideration (in the eye of the law)" or, in Latin, sine causa, it will have at the same time to learn what civilian systems mean by insufficient legal cause and it will have to learn how the civilian systems relate unjust enrichment and property.

142. Some may answerthat the common law has had no approach of its own worthy of the name -certainly none worth preserving or respecting. That is not correct, although it is true that its position has until recently (until Lipkin Gorman v Karpnale Ltd supra n 6 , on the emancipating effects of which see P Birks (1993) 46(1) CLP 157, 157-158) been so obscured by inappropriate language as to have been barely recognisable. The blame lay with the impenetrable language of the forms of action and the too frequent invocation of implied contract, Goff & Jones supran 1,5-12; cfthe actional asymmetry betweenmoney and money's worth, p 227, supra.

143. Seep 217 et seq. 144. Cf Beatson supra n 75 and pp 218-219 supra.


It is neither to its credit nor discredit that it will not do so, certainly not at the necessary speed.

This is a rejection of flirtation with civilian terminology. It is not a rejection of comparative study in the law schools, from which there will be immense advantage to be derived. Having emerged from the language of the forms of action, the common law of unjust enrichment is now for the first time in a condition in which it can talk to, and listen to, its civilian counterparts. The dialogue will continue an extraordinarily difficult task which has challenged lawyers since the second century, namely the search for the best way of saying when it is that an enrichment is unjust and must be given up to the person at whose expense it was received and the best way of sub- dividing that answer to make it manageable.

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