Mistake Issues
Cases
Cooper v Phibbs
[1867] UKHL 1 (31 May 1867)
Lord Cranworth
The consequence was, that the present Appellant, when, after the death of his uncle, he entered into the agreement to take a lease of this property, entered into an agreement to take a lease of what was, in truth, his own property – for, in truth, this fishery was bound by the covenant, and belonged to him, just as much as did the lands of Ballysadare; therefore, he says, I entered into the agreement under a common mistake, and I am entitled to be relieved from the consequence of it.
In support of that proposition he relied upon a case which was decided in the time of Lord Hardwicke, not by Lord Hardwicke himself, but by the then Master of the Rolls, Bingham v. Bingham(1),where that relief was expressly administered. I believe that the doctrine there acted upon was perfectly correct doctrine; but even if it had not been, that will not at all shew that this Appellant is not entitled to this relief, because in this case the Appellant was led into the mistake by the misinformation given to him by his uncle, who is now represented by the Respondents. It is stated by him in his Cause Petition, which is verified, and to which there is no contradiction, and in all probability it seems to be the truth, that his uncle told him, not intending to misrepresent anything, but being in fact in error, that he was entitled to this fishery as his own fee simple property; and the Appellant, his nephew, after his death acting on the belief of the truth of what his uncle had so told him, entered into the agreement in question. It appears to me, therefore, that it is impossible to say that he is not entitled to the relief which he asks, namely, to have the agreement delivered up and the rent repaid. That being so, he would be entitled to relief, but he is only entitled to this relief on certain terms, to which I will presently advert.
(1) 1 Ves. Sen. 127.
Before I do so I must refer to an argument which was relied on very much by the Respondents, namely, that the fishery conveyed in 1806 by Sir Edward Crofton was not the fishery in the estuary, but only in the livers, and that consequently the nephew, had no right whatever in that fishery under the descent from his uncle. I cannot think that there is any foundation for this suggestion, because the Act of Parliament expressly states that the fishery, in the estuary and at the mouths of the rivers, had descended from the lunatic uncle upon Edward Joshua. But even if it had been so, in my opinion it would not have made the least difference, for the right of fishing in rivers traversing the lands is an incident to the right of property, and that property certainly was governed by the covenant of 1827.
The argument on the part of the Respondents is, that the right to make the new cuts conferred by the Act was a new right, and that that new right was granted to Edward Joshua in fee. I do not think that that is a true construction of the Act, but if it was it would be a right which Edward Joshua obtained by virtue of his light to the lands and to the fishing in the fresh waters. As to that right he stood in a fiduciary relation to those interested under the deed of 1827. But for his right under that instrument he could not have obtained the powers conferred by the Act. In my opinion the very same doctrine that is acted upon so continually, that a tenant for life of a renewable property, if he renews it, cannot by possibility renew it for his own benefit, applies in principle to this case. If the facts had been such as the Respondents contend they were, namely, that he was the owner in fee simple under the Act of Parliament, and that the property was not governed by the covenants of 1827, still, even if it was not governed by those covenants, he stood in a fiduciary character, which disqualified him from making any such contention as that. Therefore, it is clear to my mind that the Appellant is entitled to the relief he asks by getting rid of this agreement.
Then the next question is, what are the terms upon which this relief is to be given? Now,the Respondents allege that their father, Edward Joshua , in making the canals and other works necessary for establishing the fishery, and also in purchasing up fishery rights in the bay, expended very large sums of money.
First of all he was at the expense of obtaining the Act of Parliament. It was intended that the Act of Parliament should be passed in the lunatic’s lifetime, but the lunatic having died, it was treated as being from the beginning Edward Joshua’s expenditure. He was at great expense in purchasing up the rights of fishery of different proprietors on the banks, and he was at very large expense in making cuts and removing obstructions, so as to make the fishery available. That, at least, is the allegation of the Respondents. Now, if that is so, the question is, upon what terms ought this relief to be granted? It is impossible to decide the merits of this claim in the absence of the persons entitled to the corpus of the estate. On the marriage of the Appellant, in 1858, the property was settled to uses, and on trusts, for the benefit of the Appellant and his wife, and the issue of the marriage. The Appellant, therefore, has not brought before the Court all the persons interested in this question. If the Respondents succeed in establishing their lien, it will be a lien affecting the life interest of the Appellant, as well as the rest of the corpus of the property, and so justice would not be done to them if we were to give relief to the Appellant by simply setting aside the agreement on which they claim a lien. They have a right to have that question disposed of. I submit to your Lordships, therefore, that all that we can do is to remit the case to the Court of Chancery in Ireland, with declarations which shall enable the parties to have this question properly decided.
The declarations that I would suggest to your Lordships as the proper ones to be made, are these: To declare that the lands and hereditaments conveyed to Joshua Edward Cooper by the deeds of 1806 (including the fishery of Ballysadare ), were comprised in the settlement of the 13th of February, 1827, and were bound by the covenant of Edward Joshua Cooper therein contained; and that at the time of the passing of the Act of Parliament of 1 Vict. c. 89, the said Edward Joshua Cooper was a trustee of the lands, hereditaments, and fishery of Ballysadare, for the persons entitled under the trusts of the aforesaid settlement of 1827, and that the rights, powers, and interests granted to the said his heirs and assigns, by the said Act of Parliament, must be deemed to have been taken by him as a trustee for the persons entitled under the settlement of 1827, including himself as tenant for life; and that all the estates, rights, and interests acquired by the said Edward Joshua Cooper, under and by virtue of such powers; and the canal and works made and constructed by him, by virtue of the said Act, were acquired, made, and held by him in like manner, in trust for himself and the other persons entitled under the said settlement of 1827. And farther declare: that the lands and fishery of Ballysadare were also comprised in the settlement of the 6th of August, 1858; and that under and by virtue of the said several settlements, the Appellant was, at the time of the making of the agreement of the 14th day of October, in 1863, in his Petition mentioned, entitled as tenant for life to the said lands and fishery of Ballysadare, including therein the rights and interests and works acquired and made by the said as aforesaid (save and except only the piece of land demised by the deed of the 27th of September, 1858, and the buildings thereon). That alludes to a lease that was granted by the Appellant, the details of which it is immaterial to allude to, for this question. And farther declare: that the aforesaid agreement of the 14th of October, 1863, in the said Petition mentioned, was made and entered into by the parties to the same under mistake, and in ignorance of the actually existing rights and interests of such parties in the said fishery. And farther declare: that the said agreement is not in equity binding upon the Appellant and Respondents, but ought to be set aside, subject to the Appellant paying to the Respondents a proper occupation rent for the said excepted piece of land and cottage, to be ascertained by the Master in the usual manner; and subject also, as hereinafter is mentioned, that is to say, the Respondents claiming to have a lien on the said fishery on account of the moneys said to have been expended by the said Edward Joshua Cooper in obtaining the said Act of Parliament, and in purchasing the said rights of fishery, and in making and improving the same. Let the said Petition stand over for six months, with liberty for the Appellant to bring before the Court, by Supplemental Petition, all persons interested with respect to the said claim, and refer it back to the Court to do as may be just on such Supplemental Petition, having regard to the aforesaid declaration; and if the Appellant shall fail to file such Supplemental Petition within the period aforesaid, or such farther period as may be allowed by the Court, then let the present appeal be dismissed with costs.
Upon these grounds, I move your Lordships that the decree below should be reversed, subject to those declarations.
Lord Westbury
The Act of Parliament contemplates that there would be one fishery only, a fishery constituted of the original right in the fishery of Ballysadare, and augmented and improved by gathering in other rights of fishery, extending over the shore of the bay, which he had the power of acquiring, so that there might be one large profitable fishery. Now, the fishery, in point of fact, ends with the estuary, and with the beginning of the cut, because the cut or canal was intended only to improve the fishery, I might almost even say to continue the fishery, because we well known that there can be no fishery from the resort of salmon, unless the salmon have the means of ascending to the breeding grounds in the higher quarters, and they resort to these places only when they have that opportunity. One fishery, therefore, was constituted by virtue of those powers, and that fishery was again conveyed by the settlement of 1858, under which the present Petitioner is tenant for life.
The result, therefore, is, that at the time of the agreement for the lease which it is the object of this Petition to set aside, the parties dealt with one another under a mutual mistake as to their respective rights. The Petitioner did not suppose that he was, what in truth he was, tenant for life of the fishery. The other parties acted upon the impression given to them by their father, that he (their father) was the owner of the fishery, and that the fishery had descended to them. In such a state of things there can be no doubt of the rule of a Court of equity with regard to the dealing with that agreement. It is said, “” but in that maxim the word ” jus ” is used in the sense of denoting general law, the ordinary law of the country. But when the word ” jus ” is used in the sense of denoting a private right, that maxim has no application. Private right of ownership is a matter of fact; it may be the result also of matter of law; but if parties contract under a mutual mistake and misapprehension as to their relative and respective rights, the result is, that that agreement is liable to be set aside as having proceeded upon a common mistake. Now, that was the case with these parties – the Respondents believed themselves to be entitled to the property, the Petitioner believed that he was a stranger to it, the mistake is discovered, and the agreement cannot stand.
But then, when the Appellant comes here to set aside the agreement, an obligation lies upon him so to constitute his suit as to enable a Court of Equity to deal with the whole of the subject-matter, and once for all to dispose of the rights and interests of the parties in the settlement. Now although the agreement was inoperative for the purpose of giving to the Petitioner a valid lease of the property, yet it might operate to this extent, that so far as the Respondents had in equity a lien upon the property, their estates and interests in respect of that lien might be affected by the agreement. And there is another particular also which must be noticed, which for the moment, I think, in the preparation of these minutes, has escaped our attention, namely, that unquestionably the Respondents were entitled to the cottage and to the piece of land, upon which no rent has been paid. But, during the time that has elapsed, I understand the fact to be, that the Petitioner has had the possession and enjoyment of that cottage and of that piece of land. In respect of those particulars, therefore, a proper occupation rent ought to be paid by him.
What, then, are the rights and interests of the parties which ought to be ascertained? They are, as I have already observed, the sum of money due to the Respondents, and charged upon the property, as being the expenditure of their father, the benefit of which the Petitioner, as tenant for life, has enjoyed. Now, no doubt that expenditure constitutes a lien – a charge in the nature of a mortgage charge upon the property. It must be ascertained, and an obligation lies upon the present Appellant to give the Court the means of ascertaining it. That is the reason, therefore, why the decree is proposed to be put in the form which your Lordships have heard, namely, that although a declaration is made, in order to shew the basis upon which the opinion of the House is founded, with respect to the invalidity of the agreement, yet the House stops short of giving positive relief, except on the terms imposed on the Petitioner, to which in reality, by the prayer of his Petition, he submits, by giving an opportunity to the Respondents to ascertain the full measure of their rights and interests, in order that complete justice may be done, by declaring that they will be entitled to a charge for the principal money so ascertained, and to interest thereon, at the rate of 4 per cent., from the time of the death of their father, Edward Joshua Cooper, who was the last person in possession of the fishery antecedent to the title of the present Appellant, and declaring also (which must be added to that), that they are entitled to an occupation rent during the time that the present Appellant has been in possession and enjoyment of the cottage and the piece of land.
My Lords, these terms, I have very little doubt, will be submitted to by the Petitioner, because they are consistent with the willingness, which he has expressed in his Petition, to have the whole of the rights ascertained. And if that be done, and if he brings before the Court, by Supplemental Cause Petition, the parties who are interested in the ascertainment of those rights, the subject will be disposed of; but, if he does not do so, then he has brought forward an insufficient and incompetent Petition, upon which full equity and full relief cannot be given, and the only result must be, that his Petition to the Court below ought to be dismissed, though it must be dismissed upon quite different grounds.
My Lords, I regret to find that observations have been made in the Court below, though I cannot at all suppose that they were the ratio decidendi, that upon some extrinsic evidence it appeared to the Court below that the fishery was not intended to be comprised in the deed of 1827. When there is an application to correct an instrument, or to set aside an instrument, the intention of the parties is to be collected from the words they have used; and no words can be more pertinent or more comprehensive than the words in the settlement of 1827, and the words in the settlement of 1858, to denote the intention of including the fishery in the provisions of those deeds, and making it subject to the trusts which are thereby created.
Kleinwort Benson Ltd v. Lincoln City Council Kleinwort
[1998] UKHL 38, [1998] 4 All ER 513, [1998] 3 WLR 1095, [1999] 2 AC 349
Lord Goff
Issue
1 Whether the present rule, under which in general money is not recoverable in restitution on the ground that it was paid under a mistake of law, should be maintained as part of English law.
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The main criticisms of the rule are now widely perceived as threefold (see the Law Commission’s Consultation Paper No. 120 on Restitution of Payments made under a Mistake of Law, paras. 2.24–2.26). First, the rule allows the payee to retain a payment which would not have been made to him but for the payer’s mistake, whereas justice appears to demand that money so paid should be repaid unless there are special circumstances justifying its retention. Second, the distinction drawn between mistakes of fact (which can ground recovery) and mistakes of law (which cannot) produces results which appear to be capricious. It is usual here to compare the results in Bilbie v. Lumley and Kelly v. Solari, each concerned with an action by an underwriter to recover back money paid under an insurance policy under a mistake. In the former case, where he did not appreciate that the law enabled him to repudiate a policy for non-disclosure, his action failed; but in the latter, where he forgot that the premium had not been paid and so the policy had lapsed, his action was successful. The same comment can be made of the exceptions and qualifications to which the rule became subject. These are usefully listed in paras. 2.5–2.15 of the Law Commission’s Report, Restitution: Mistakes of Law and Ultra Vires Public Authority Receipts and Payments (1994) (Cm. 2731) (Law Com. No. 227). They are well- known, and it is unnecessary for me to rehearse them in this opinion. It is however legitimate to comment that, apart from limits such as the recently recognised defence of change of position and an as yet undefined limit in cases in which the payment has been made in settlement of an honest claim, these exceptions and qualifications are heterogeneous and in truth betray an anxiety to escape from the confines of a rule perceived to be capable of injustice; and that, as a result, the law appeared to be arbitrary in its effect. Third, as a result of the difficulty in some cases of drawing the distinction between mistakes of fact and law, and the temptation for judges to manipulate that distinction in order to achieve practical justice in particular cases, the rule became uncertain and unpredictable in its application.
Rejection of the mistake of law rule in the common law world: It is perhaps easier for us now to see that the policy underlying the rule can best be achieved, consistently with justice, by the recognition of a right of recovery subject to specified defences to cater for the fears which formerly appeared to require a blanket exclusion of recovery. However the blossoming of scholarly interest in the development of a coherent law of restitution did not occur in the common law world until the middle of the twentieth century, inspired by the pioneering work of Professors Seavey and Scott in the American Restatement of the Law of Restitution published in 1937. We may regret that it was not until late in the long history of the common law that this should have occurred, but now the judges are able to welcome the assistance which they receive from a number of distinguished writers on the subject. There can be no doubt that it is this scholarly work which has provided the prime cause for the rejection of the mistake of law rule, either by legislation or by judicial decision, in countries throughout the common law world. This is due not only to specific criticism of the mistake of law rule as such, but still more to the combined effect of two fundamental changes in the law: first, recognition that there exists a coherent law of restitution founded upon the principle of unjust enrichment, and second, within that body of law, recognition of the defence of change of position. This is due essentially to the work of scholars. Once that work had been published and widely read it was, I believe, inevitable that in due course both doctrines would be recognised by the judges, the time of such acceptance depending very much on the accidents of litigation. In fact, in England both were accepted by this House in 1991, in the same case– Lipkin Gorman v. Karpnale Ltd. [1991] 2 AC 548. Once both had been recognised it became, in my opinion, also inevitable that the mistake of law rule should be abrogated, or at least reformulated, so that there should be a general right of recovery of money paid under a mistake, whether of fact or law, subject to appropriate defences. This is because a blanket rule of non-recovery, irrespective of the justice of the case, cannot sensibly survive in a rubric of the law based on the principle of unjust enrichment; and because recognition of a defence of change of position demonstrates that this must be proved in fact if it is to justify retention, in whole or in part, of money which would otherwise be repayable on the ground that the payee was unjustly enriched by its receipt. The combined effect is not only that the mistake of law rule can no longer be allowed to survive, but also that the law must evolve appropriate defences which can, together with the defence of change of position, provide protection where appropriate for recipients of money paid under a mistake of law in those cases in which justice or policy does not require them to refund the money. It is this topic which lies at the centre of the present appeals. As the argument before the Appellate Committee has demonstrated, the identification of such defences is by no means easy and, whatever your Lordships’ House may decide, the topic is likely to continue to engage the attention of judges, scholars and law reformers for some years to come.
I have referred to the fact that the mistake of law rule has already been abrogated in other common law jurisdictions, either by legislation or by judicial decision. This material is, of course, well known to lawyers in this country, and has, I know, been studied by all members of the Appellate Committee, not of course for the first time, and is regarded with great respect. However, since it is conceded in these appeals by the respondent local authorities that the mistake of law rule must at least be reformulated in the manner indicated by them, I trust that I will be forgiven if I do not lengthen this opinion by an express consideration of, in particular, the relevant judicial pronouncements. I refer, of course, to the dissenting opinion of Dickson J. (as he then was), with whom Laskin C.J. agreed, in Hydro Electric Commission of the Township of Nepean v. Ontario Hydro [1982] 1 R.C.S. 347, 357-370, later to be adopted by La Forest J., with whom (on this point) Lamer, Wilson and L’Heureux-Dubé JJ. agreed, in Air Canada v. British Columbia [1989] 1 S.C.R. 1161, 59 D.L.R. (4th) 161; and David Securities Pty. Ltd. v. Commonwealth Bank of Australia (1992) 175 C.L.R. 353. (I shall have to refer in particular to the dissenting judgment of Brennan J. (as he then was) in this case at a later stage, when I come to consider the proposed defence of honest receipt.) From countries which, on this topic, apply a system of law based on the civil law, I refer to the decisions of the Appellate Division of the Supreme Court of South Africa in Willis Faber Enthoven (Pty.) Ltd. v. Receiver of Revenue (1992) (4) SA 202, and of the Inner House of the Court of Session in Morgan Guaranty Trust Co. of New York v. Lothian Regional Council 1995 SC 151, each of whom also rejected the mistake of law rule. The same conclusion was reached at an earlier date by legislation in New Zealand (see section 94A of the Judicature Act 1908, inserted by section 2 of the Judicature Amendment Act 1958) and Western Australia (see section 23 of the Law Reform (Property, Perpetuities and Succession) Act 1962). I shall have to refer to the New Zealand and Western Australian legislation at a later stage, when I come to consider the proposed exclusion of recovery in cases where payments have been made under a settled understanding of the law subsequently departed from by judicial decision. I should add that the mistake of law rule either never applied, or has been abrogated, in a number of States of the United States of America.
The Law Commission: The Law Commission has, in its Report (Law Com. No. 227) on the subject (to which I have already referred), recommended that the mistake of law rule should be abrogated (see paras.3.1 et seq., and clause 2 of the draft Bill appended to the Report). For the reasons set out in paras. 3.8 -3.12 the Commission has recommended that this change should be introduced by legislation. This is a matter to which I will have to return later in this opinion.
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Conclusion on the First Issue. For all these reasons, I am satisfied that your Lordships should, if you decide to consider the point yourselves rather than leave it to the Law Commission, hold that the mistake of law rule no longer forms part of English law. I am very conscious that the Law Commission has recommended legislation. But the principal reasons given for this were that it might be some time before the matter came before the House, and that one of the dissentients in the Woolwich case (Lord Keith of Kinkel) had expressed the opinion that the mistake of law rule was too deeply embedded to be uprooted judicially: [1993] AC 70, 154. Of these two reasons, the former has not proved to be justified, and the latter does not trouble your Lordships because a more robust view of judicial development of the law is, I understand, taken by all members of the Appellate Committee hearing the present appeals. Moreover, especially in the light of developments in other major common law jurisdictions, not to mention South Africa and Scotland, the case for abrogation is now so strong that the respondents in these appeals have not argued for its retention. In these circumstances I can see no good reason for postponing the matter for legislation, especially when we do not know whether or, if so, when Parliament may legislate. Finally I believe that it would, in all the circumstances, be unjust to deprive the Appellant, Kleinwort Benson, of the benefit of the decision of the House on this point. I would therefore conclude on Issue (1) that the mistake of law rule should no longer be maintained as part of English law, and that English law should now recognise that there is a general right to recover money paid under a mistake, whether of fact or law, subject to the defences available in the law of restitution.
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Occasionally, a judicial development of the law will be of a more radical nature, constituting a departure, even a major departure, from what has previously been considered to be established principle, and leading to a realignment of subsidiary principles within that branch of the law. Perhaps the most remarkable example of such a development is to be found in the decisions of this House in the middle of this century which led to the creation of our modern system of administrative law. It is into this category that the present case falls; but it must nevertheless be seen as a development of the law, and treated as such.
Bearing these matters in mind, the law which the judge then states to be applicable to the case before him is the law which, as so developed, is perceived by him as applying not only to the case before him, but to all other comparable cases, as a congruent part of the body of the law. Moreover when he states the applicable principles of law, the judge is declaring these as constituting the law relevant to his decision. Subject to consideration by appellate tribunals, and (within limits) by judges of equal jurisdiction, what he states to be the law will, generally speaking, be applicable not only to the case before him but, as part of the common law, to other comparable cases which come before the courts, whenever the events which are the subject of those cases in fact occurred.
It is in this context that we have to reinterpret the declaratory theory of judicial decision. We can see that, in fact, it does not presume the existence of an ideal system of the common law, which the judges from time to time reveal in their decisions. The historical theory of judicial decision, though it may in the past have served its purpose, was indeed a fiction. But it does mean that, when the judges state what the law is, their decisions do, in the sense I have described, have a retrospective effect. That is, I believe, inevitable. It is inevitable in relation to the particular case before the court, in which the events must have occurred some time, perhaps some years, before the judge’s decision is made. But it is also inevitable in relation to other cases in which the law as so stated will in future fall to be applied. I must confess that I cannot imagine how a common law system, or indeed any legal system, can operate otherwise if the law is be applied equally to all and yet be capable of organic change. This I understand to be the conclusion reached in Cross and Harris on Precedent in English Law, 4th ed., from which I have derived much assistance, when at p. 33 they ask the question: “what can our judges do but make new law and how can they prevent it from having retrospective effect?” This is also the underlying theme of Lord Coulsfield’s evidence to the Scottish Law Commission quoted in para. 3.14 of their Discussion Paper No. 99, Judicial Abolition of the Error of Law Rule and its Aftermath (1996) (which I have read with interest and respect) in which, in the light of the decision of the Inner House in Morgan Guaranty Trust Co. of New York v. Lothian Regional Council 1995 SC 151, and especially the notable judgment of my noble and learned friend Lord Hope of Craighead in that case, they reconsider and resile from their previous proposal that Scots law should adopt a “settled understanding of the law” provision along the lines proposed by our own Law Commission. The only alternative, as I see it, is to adopt a system of prospective overruling. But such a system, although it has occasionally been adopted elsewhere with, I understand, somewhat controversial results, has no place in our legal system. I wish to add that I do not regard the declaratory theory of judicial decision, as I have described it, as an aberration of the common law. Since I regard it as an inevitable attribute of judicial decision-making, some such theory must, I imagine, be applied in civil law countries, as in common law countries; indeed I understand that a declaratory theory of judicial decision applies in Germany, though I do not know its precise form.
It is in the light of the foregoing that I have to ask myself whether the Law Commission’s “settled understanding of the law” proposal forms part of the common law. This, as I understand the position, requires that I should consider whether parties in the position of Kleinwort Benson were mistaken when they paid money to local authorities under interest swap agreements which they, like others, understood to be valid but have later been held to be void. To me, it is plain that the money was indeed paid over under a mistake, the mistake being a mistake of law. The payer believed, when he paid the money, that he was bound in law to pay it. He is now told that, on the law as held to be applicable at the date of the payment, he was not bound to pay it. Plainly, therefore, he paid the money under a mistake of law, and accordingly, subject to any applicable defences, he is entitled to recover it. It comes as no surprise to me that, in the swaps litigation, it appears to have been assumed that money paid pursuant to interest rate swap agreements was paid under a mistake which, in Westdeutsche Landesbank Girozentrale v. Islington London Borough Council [1994] 4 All E.R. 890, 931E, was inevitably held by Hobhouse J. to have been a mistake of law and so, on the law as it then stood, irrecoverable on that basis. Not surprisingly, there is very little previous authority on the question whether in such circumstances the money has been paid under a mistake of law; but such authority as there is supports this view. The case most frequently cited in this context is Henderson v. Folkestone Waterworks Co., briefly reported in (1885) 1 T.L.R. 329. This case is referred to in para. 2.65 of the Law Commission’s Consultation Paper No. 120, and was relied on in argument by Mr. Underhill Q.C. on behalf of the respondent local authorities. In my opinion, however, it does not assist his argument. The plaintiff was rated by the defendant water company at a rate which was legal under a decision which was subsequently reversed by the House of Lords. He then sought to recover the excess; in answer to the defendants’ argument that the payment was voluntary and so irrecoverable, he claimed that he paid the money under compulsion. This argument was rejected by a Divisional Court, consisting of Lord Coleridge C.J. and A. L. Smith J., on the ground that the money, having been paid voluntarily under a mistake of law, could not be recovered back. The only passage relied on is contained in an expostulation, in the course of argument, by Lord Coleridge, who had been party to the decision reversed by the House of Lords, when he said: “I had held the contrary, and two eminent Judges agreed with me. Can that be put as ignorance of law?” Little or no importance can however be attached to this intervention in the present context, since both members of the Court rejected the plaintiff’s claim on the ground that the money was paid voluntarily under a mistake of law, and was therefore irrecoverable.
In Derrick v. Williams [1939] 2 All E.R. 559, following the reversal by the House of Lords in Rose v. Ford [1937] A.C. 826 of the decision of the Court of Appeal that damages could not be recovered for loss of expectation of life, the plaintiff brought a fresh action seeking to recover such damages notwithstanding that in a previous action on the same facts he had taken out of court money paid in on the basis that no such damages were recoverable. The Court of Appeal held that he could not do this, and dismissed the second action. But in the course of his judgment Sir Wilfrid Greene M.R. made it plain that the plaintiff had acted under a mistake of law in taking the money out of court in the first action. He said, at p. 565E:
“It was a mistake of law, and consisted of the fact that the plaintiff was under the belief that the law as laid down by this court in Rose v. Ford was correctly laid down. In that he was wrong, and he is asking the court to say that, having acted upon the basis of a mistaken view of the law, now that the law has been enunciated by the highest tribunal, he is entitled to make another attempt. That is a thing which, it seems to me, cannot be permitted on principle.”
The same view is expressed by Professor Burrows in his Law of Restitution, 4th ed. (1993) at pp. 118-119, where he points out that in the common law the jurisprudential tradition is that “changes” are retrospective. He continues:
“On this retrospective view the payor did make a mistake of law at the time he made the payment and, in accordance with the proposed abolition of the mistake of law bar, he would prima facie be entitled to restitution.”
He then proceeds to rehearse the arguments for and against legislative change of the law in this respect.
The question then arises whether, having regard to the fact that the right to recover money paid under a mistake of law is only now being recognised for the first time, it would be appropriate for your Lordships’ House so to develop the law on the lines of the Law Commission’s proposed reform as a corollary to the newly developed right of recovery. I can see no good reason why your Lordships’ House should take a step which, as I see it, is inconsistent with the declaratory theory of judicial decision as applied in our legal system, under which the law as declared by the judge is the law applicable not only at the date of the decision but at the date of the events which are the subject of the case before him, and of the events of other cases in pari materia which may thereafter come before the courts. I recognise, of course, that the situation may be different where the law is subject to legislative change. That is because legislation takes effect from the moment when it becomes law, and is only retrospective in its effect to the extent that this is provided for in the legislative instrument. Moreover even where it is retrospective, it has the effect that as from the date of the legislation a new legal provision will apply retrospectively in place of that previously applicable. It follows that retrospective legislative change in the law does not necessarily have the effect that a previous payment was, as a result of the change in the law, made under a mistake of law at the time of payment. (I note in parenthesis that in Commissioner of State Revenue v. Royal Insurance Australia Ltd. (1994) 69 A.L.J.R. 51, the High Court of Australia was divided on the question whether the retrospective legislation there under consideration had the effect that a previous payment had been made under a mistake of law.) As I have already pointed out, this is not the position in the case of a judicial development of the law. But, for my part, I cannot see why judicial development of the law should, in this respect, be placed on the same footing as legislative change. In this connection, it should not be forgotten that legislation which has an impact on previous transactions can be so drafted as to prevent unjust consequences flowing from it. That option is not, of course, open in the case of judicial decisions.
At this point it is, in my opinion, appropriate to draw a distinction between, on the one hand, payments of taxes and other similar charges and, on the other hand, payments made under ordinary private transactions. The former category of cases was considered by your Lordships’ House in Woolwich Equitable Building Society v. Inland Revenue Commissioners [1993] AC 70, in which it was held that at common law taxes exacted ultra vires were recoverable as of right, without the need to invoke a mistake of law by the payer. Moreover reference was made, in the course of the hearing, to the various statutory provisions (usefully summarised in the Law Commission’s Consultation Paper (Law Com. No. 120) at pp. 74-84) which regulate the repayment of overpaid tax. For present purposes it is of interest that, in the case of some taxes (including income and corporation tax), no relief is given “in respect of an error or mistake as to the basis on which the liability . . . ought to have been computed where the return was in fact made on the basis of or in accordance with the practice generally prevailing at the time when the return was made:” see the proviso to section 33(2) of the Taxes Management Act 1970.
Two observations may be made about the present situation. (I of course have it in mind that this is the subject of proposals for legislative reform contained in the Law Commission’s Report (Law Com. No. 227), but your Lordships are concerned with the law as it stands at present.) The first observation is that, in our law of restitution, we now find two separate and distinct regimes in respect of the repayment of money paid under a mistake of law. These are (1) cases concerned with repayment of taxes and other similar charges which, when exacted ultra vires, are recoverable as of right at common law on the principle in Woolwich, and otherwise are the subject of statutory regimes regulating recovery; and (2) other cases, which may broadly be described as concerned with repayment of money paid under private transactions, and which are governed by the common law. The second observation is that, in cases concerned with overpaid taxes, a case can be made in favour of a principle that payments made in accordance with a prevailing practice, or indeed under a settled understanding of the law, should be irrecoverable. If such a situation should arise with regard to overpayment of tax, it is possible that a large number of taxpayers may be affected; there is an element of public interest which may militate against repayment of tax paid in such circumstances; and, since ex hypothesi all citizens will have been treated alike, exclusion of recovery on public policy grounds may be more readily justifiable.
In the present case, however, we are concerned with payments made under private law transactions. It so happens that a significant number of payments were in fact made under interest rate swap agreements with local authorities before it was appreciated that they were void; but the number is by no means as great as might conceivably occur in the case of taxes overpaid in accordance with a prevailing practice, or under a settled understanding of the law. Moreover the element of public interest is lacking. In cases such as these I find it difficult to understand why the payer should not be entitled to recover the money paid by him under a mistake of law, even if everybody concerned thought at the time that interest rate swap agreements with local authorities were valid.
Of course, I recognise that the law of restitution must embody specific defences which are concerned to protect the stability of closed transactions. The defence of change of position is one such defence; the defences of compromise, and settlement of an honest claim (the scope of which is a matter of debate), are others. It is possible that others may be developed from judicial decisions in the future. But the proposed “settled understanding of the law” defence is not, overtly, such a defence. It is based on the theory that a payment made on that basis is not made under a mistake at all. Once that reasoning is seen not to be correct, the basis for the proposed defence is, at least in cases such as the present, undermined.
I wish further to add that the proposal that a payment made under a settled understanding of the law, later proved to be erroneous, should be irrecoverable, does not depend upon the lapse of any period of time after the date of the payment in question. Take the present case. Suppose that, shortly after the payment by Kleinwort Benson to a local authority of the first sum due under an interest rate swap contract, it transpires that the contract was ultra vires the local authority and so void, and that the sum so paid was therefore not due. Let it also be assumed that there have been relatively few transactions of this kind with local authorities, but enough for it to be said that that sum was paid on the basis of a settled understanding that the money was lawfully due. I find it difficult to accept that, for that reason alone, the payment would be irrecoverable as having been paid under a mistake of law. Indeed it is an remarkable feature of the proposed principle that, the longer ago the payment was made, the less likely is it to have been made under a settled understanding of the law. An appropriately drawn limitation statute would surely produce a more just result. This is a point to which I will return later in this opinion.
For these reasons alone, therefore, I would reject the argument of the local authorities on this point. But I wish to refer also to the insecure foundation upon which the proposed provision is based, arising from the difficulty of defining the circumstances in which it should apply. The New Zealand statutory provision (section 94A(2) of the Judicature Act 1908) excludes relief in respect of “any payment made at a time when the law requires or allows, or is commonly understood to require or allow, the payment to be made or enforced, by reason only that the law is subsequently changed or shown not to have been as it was commonly understood to be at the time of payment”. The Western Australian statutory provision (section 23(2) of the Law Reform (Property, Perpetuities and Succession) Act 1962) takes the same form. It is recognised, however, that the concept of “common understanding” of the law has given rise to difficulty (see, e.g., Bell Bros. Pty. Ltd. v. Shire of Serpentine–Jarrahdale [1969] W.A.R. 155) and, on this score at least, the statutory provision has been the subject of criticism. In this country the Law Commission has attempted to improve on the New Zealand statute by referring not to a common understanding of the law, but instead to a “settled view of the law” which has been departed from by a subsequent judicial decision. However, as Mr. Southwell Q.C. pointed out in argument, there could be much scope for argument over what constituted a settled view of the law. Take the case of interest rate swap agreements. These were assumed by the banks (and indeed by others concerned) to be within the powers of local authorities; but this assumption appears to have been based on practical grounds, rather than on advice about the legal position. Nor do the local authorities appear to have addressed the legal position until after the matter was raised by the Audit Commission in 1987, over five years after agreements of this kind began to be entered into by local authorities. Had the point arisen under a statute in the form recommended by the Law Commission, it would have been necessary to consider whether the above circumstances gave rise to a “settled view of the law.” It is only necessary to pose the question to realise how difficult it would have been to answer it in the present case, and very possibly in the case of other payments made under private transactions. For this reason alone it comes as no surprise that the Law Reform Commission of British Columbia decided (see their Report No. 51 (1981) at pp. 68 et seq.) not to recommend the adoption of any such provision in that Province, though they also considered (at p. 72) that the New Zealand statutory provision “goes far beyond what is required”. The Law Reform Committee of South Australia (see their Report No. 84 (1984) at p. 31) likewise did not recommend the adoption of any such provision, though three years later the Law Reform Commission of New South Wales (see their Paper No. 53 (1987) at paras. 5.20–5.29) proposed the legislative adoption of a similar but not identical provision. In Scotland, as I have already recorded, the Scottish Law Commission at first recommended its adoption, but later resiled from that recommendation. That this whole topic is one of great difficulty can perhaps best be seen in the Scottish Law Commission’s Discussion Paper No. 99, in which the rival arguments for and against legislative reform are rehearsed in some detail, and the difficulties exposed. This division of opinion does not encourage statutory adoption of a provision in these or comparable terms, still less its recognition as part of the common law of this country.
Issue IB–Honest receipt: This issue arises from a principle proposed by Brennan C.J. (then Brennan J.) in David Securities Pty. Ltd. v. Commonwealth Bank of Australia (1991-1992) 175 C.L.R. 353 at p. 399. It reads as follows:
“It is a defence to a claim for restitution of money paid or property transferred under a mistake of law that the defendant honestly believed, when he learnt of the payment or transfer, that he was entitled to receive and retain the money or property.”
This principle was expressly proposed in order to achieve a degree of certainty in past transactions. As Brennan C.J. said (at p. 398): “Unless some limiting principle is introduced, the finality of any payment would be as uncertain as the governing law.”
In this part of the law there has long been concern, among common law judges, about what is sometimes called the finality of transactions, and sometimes the security of receipts. This concern formed a significant part of the amalgam of concerns which led to the rule that money paid under a mistake of law was irrecoverable on that ground. Now that that rule has been abrogated throughout the common law world, attention has of course shifted to the formulation of appropriate defences to the right of recovery. The principle proposed by Brennan C.J. is, I believe, the most far-reaching of the defences to the right of recovery that has yet been proposed.
Anything which falls from Brennan C.J. is, of course, entitled to great respect. But I have to state at once that this proposal seems to have been stillborn. Of the judges who sat with Brennan C.J. on the David Securities case, none supported this proposal. I know of no judicial support which the proposal has since received, nor of any support from any of the Law Commissions which have considered this part of the law. The reason for this lack of support is, I believe, that the proposal is generally regarded as being wider than is necessary to meet the perceived mischief.
I start from the proposition that money paid under a mistake of law is recoverable on the ground that its receipt by the defendant will, prima facie, lead to his unjust enrichment, just as receipt of money paid under a mistake of fact will do so. There may of course be circumstances in which, despite the mistaken nature of the payment, it is not regarded as unjust for the defendant to retain the money so paid. One notable example is change of the defendant’s position. Another is the somewhat undefined circumstance that the payment was made in settlement of an honest claim. Yet, Brennan C.J.’s proposed defence is so wide that, if it was accepted, these other defences would in practice cease to have any relevance in the case of money paid under a mistake of law. Moreover in many cases of this kind the mistake is shared by both parties, as for example in the case of the appeals now under consideration. In such cases, recovery by the plaintiff would automatically be barred by Brennan C.J.’s proposed defence. So sweeping is the effect of the defence that it is not perhaps surprising that it has not received support from others.
In my opinion, it would be most unwise for the common law, having recognised the right to recover money paid under a mistake of law on the ground of unjust enrichment, immediately to proceed to the recognition of so wide a defence as this which would exclude the right of recovery in a very large proportion of cases. The proper course is surely to identify particular sets of circumstances which, as a matter of principle or policy, may lead to the conclusion that recovery should not be allowed; and in so doing to draw on the experience of the past, looking for guidance in particular from the analogous case of money paid under a mistake of fact, but also drawing upon the accumulated wisdom to be found in the writings of scholars on the law of restitution. However, before so novel and far-reaching defence as the one now proposed can be recognised, a very strong case for it has to be made out; and I can discover no evidence of a need for so wide a defence as this. In particular, experience since the recognition of the right of recovery of money paid under a mistake of law in the common law world does not appear to have revealed any such need.
For these reasons, with all respect to Brennan C.J., I am unable to accept that the defence proposed by him forms part of the common law.
Issue 2–Completed transactions: This issue was added, by leave of your Lordships’ House, to the issues set out in the order of Langley J. It arose from a footnote to an Article by Professor Peter Birks entitled No Consideration: Restitution after Void Contracts (1993) 23 University of Western Australia Law Review 195. In the Article, Professor Birks was concerned to criticise the conclusion of Hobhouse J. in the Westdeutsche case [1994] 4 All E.R. 890 that the basis of recovery of money paid under void interest rate swaps agreements was absence of consideration, his preferred view being that the true ground of recovery was failure of consideration. It formed part of his argument that a party who has received full performance under such a contract cannot recover the value of his performance, i.e. the money he has paid to the other party, because in such circumstances there has been no failure of consideration for his payment. He has received what he wanted, and therefore there was no unjust factor to provide a reason for restitution. However, in a section of the Article entitled “The alternative of restitution for mistake,” he reached the conclusion in the text that it seemed that, if the remedy of recovery of money paid under a mistake was available in cases of mistake of law, his earlier conclusion would be largely cancelled out. This was because, since the effect of a mistake must be judged at the time when it was 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” (see p. 229). Moreover “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 can make counter-restitution to the court’s satisfaction” (see p. 230). His conclusion in the text (at p. 231) was that it was “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.”
However on p. 230 he added a footnote which appears to have been an afterthought. In this he said:
“Nonetheless there is one good argument against allowing restitution in this situation on the ground of this particular kind of mistake, namely the transferor’s mistaken belief in his/her liability to make 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 . . . Therefore, even though it is true, as is admitted in the text above, that the mistake will have been causative at the time of the performance, that mistake cannot on this reasoning be relied upon when matters have progressed to the point at which it can clearly be seen that the only prejudice which it might have entailed never in fact eventuated.”
The question for consideration on this Issue is whether the thesis contained in the footnote is well-founded.
It has to be said at once that the argument set out in the text of the section of the Article entitled The alternative of restitution for mistake, from which I have quoted, is most formidable. It is well established that the cause of action for the recovery of money paid under a mistake of fact accrues at the time of payment. As authority for this proposition it is usual to cite Baker v. Courage & Co. [1910] 1 K.B. 56, a decision of Hamilton J. (later Lord Sumner) which, so far as I am aware, has never been questioned. So if an agreement such as those presently under consideration, under which a series of payments falls to be made, is held to have been void so that each payment has been made under a mistake of law, i.e. the mistaken belief of the payer that he was liable to make the payment, the cause of action for the recovery of the money so paid will accrue, in respect of each payment, on the date when the payment was made. This will be true of each payment; and if the performance of the supposed contract is completed, it will be as true of the final payment as it will have been of all the previous payments. It follows that, if the argument in Professor Birks’ footnote is correct, at the moment when the final payment is made under such a contract, not only will the final payment itself be irrecoverable despite the fact that it was made under precisely the same mistake as the previous payments made by him, but the payer will somehow be divested of his accrued right to recover all those previous payments.
In the light of this analysis, the only possible basis for the thesis in Professor Birks’ footnote would seem to be that, in the context of void contracts, failure of consideration should be allowed to trump mistake of law as a ground for recovery of benefits conferred. However an equally strong argument may perhaps be made in favour of mistake of law trumping failure of consideration, though either approach is antagonistic to the usual preference of English law to allow either of two alternative remedies to be available, leaving any possible conflict to be resolved by election at a late stage. Neither of these two solutions was however relied upon in argument in the present case; and it is in any event difficult to see how Professor Birks’ proposal in his footnote can here be reconciled with the consequences of invalidity arising from the application of the ultra vires doctrine. As a result, following the decision of the House of Lords in Hazell, it was ordered and declared that the items of account (irrespective whether they represented payments or receipts) appearing in the capital markets fund account of the local authority in that case (Hammersmith and Fulham London Borough Council) for the years under challenge were contrary to law (see [1992] 2 A.C. 1, 43H-44A per Lord Templeman, with whose opinion the other members of the Appellate Committee agreed). Of the interest rate swap transactions entered into by the Council, some were closed transactions, and a number were profitable, but no exceptions were made for these in the declarations so made. As Mr. Southwell Q.C. submitted on behalf of Kleinwort Benson, it is incompatible with the ultra vires rule that an ultra vires transaction should become binding on a local authority simply on the ground that it has been completed. Moreover the ultra vires rule is not optional; it applies whether the transaction in question proves to have been profitable or unprofitable. If the argument in Professor Birks’ footnote is right, the result would be that effect would be given to a contract which public policy has declared to be void.
In my opinion, these points are unanswerable; and they are reinforced by further arguments advanced by Professor Burrows in his Article entitled Swaps and the Friction between Common Law and Equity in [1995] R.L.R. 15 at pp. 18-19. I would accordingly decide this Issue in favour of Kleinwort Benson.
LORD HOFFMANN
My Lords,
It is no mere form of words to say that I have had the privilege of reading in draft the speech of my noble and learned friend Lord Goff of Chieveley. It is, if I may be allowed respectfully to say so, one of the most distinguished of his luminous contributions to this branch of the law. On all but one of the questions debated before your Lordships, I understand that it commands unanimous assent. It would therefore be superfluous for me to add anything of my own. But I should say something on the issue which divides your Lordships, because I have to confess that on this point I have changed my mind. At the end of the argument I was of opinion, perhaps not in a very focused way, that a person who pays in accordance with what was then a settled view of the law has not made a mistake. In fact it seemed to me that one could go further and say that if he had acted in accordance with a tenable view of the law, he had not made a mistake. In the first case he was right, and in the second neither right nor wrong, but in both cases his state of mind could be better described as a failure to predict the outcome of some future event (scilicet, a decision of this House) than a mistake about the existing state of the law.
On reflection, however, I have come to the conclusion that this theory was wrong, both in its stronger (“tenable view”) and in its weaker (“settled view”) form. The reason, I think, is that it looks at the question of what counts as a mistake in too abstract a way, divorced from its setting in the law of unjust enrichment.
The problem arises because (1) the law requires that a mistake should have been as to some existing fact or (on the view which your Lordships now take) the then existing state of the law but (2) a judicial statement of the law operates retrospectively. So the question is whether the retrospectivity of the law- making process enables one to say that holding a contrary view of the law at an earlier stage was a mistake. This question cannot be answered simply by taking a robust, common sense stion at the time of payment, and that one does not believe in fairy stories. It is easy to understand the expostulation of Lord Coleridge C.J. in Henderson v. Folkestone Waterworks Co. (1885) 1 T.L.R. 329 at the suggestion that, because his judgment had been reversed by the House of Lords, he had been “ignorant of the law.” The common sense notion of a mistake as to an existing state of affairs is that one has got it wrong when, if one had been better informed, one could have got it right. But common sense does not easily accommodate the concept of retrospectivity. This is a legal notion. If the ordinary man was asked whether Lord Coleridge had made a mistake, he would no doubt have said that in the ordinary sense, which might carry some reflection on his competence as a judge, he had not. But if he was asked whether he should be treated for the purposes of some legal rule as having made a mistake, he might say “I don’t know. You tell me that the later decision operated retrospectively, which means that at least for some purposes, it must be assumed to have been the law at the time. Therefore it may be that for some purposes a person who held the contrary view should be treated as having made a mistake. It all depends upon the context. You had better ask a lawyer.”
The lawyer would, I think, start by considering why, in principle, a person who had paid because he held some mistaken belief should be entitled to recover. The answer is that it is prima facie unjust for the recipient to retain the money when, if the payer had known the true state of affairs, he would not have paid. It has never been suggested that, in the case of a mistake of fact, he could not recover if everyone would probably have shared the same false belief. On the contrary, there was once a view that he should not be able to recover if a reasonable person in his position would not have shared his false belief, but this was repudiated in Kelly v. Solari (1841) 9 M. & W. 54. Since then, it has not mattered whether the person making the payment could have discovered the true state of affairs or not.
The distinction therefore does not turn upon the fact that the person making the payment could not have discovered the true state of affairs about the law any more than about the facts. It turns upon the purely abstract proposition that in principle (and leaving aside the problem of Schrödinger’s cat) the truth or falsity of any proposition of existing fact could have been ascertained at the time, whereas the law, as it was subsequently be declared to have been, could not.
One must therefore ask why, in the context of unjust enrichment, this should make a difference. In both cases it has turned out that the state of affairs at the time was not (or was deemed not to have been) what the payer thought. In the case of a mistake of fact, it is because things were actually not what he believed them to be. In the case of a mistake of law, it is by virtue of the retrospectivity of the decision. Does the principle of unjust enrichment require that this retrospectivity should be carried through into the question of whether the payer made a mistake?
In my view, it would be very anomalous if it did not. Imagine a client who has paid under what he thought to be a legal obligation. He had not consulted a lawyer at the time, but seeks advice after a case in the House of Lords which decides that the obligation was void. The lawyer tells him that according to the House of Lords, he need not have paid. He asks whether he can recover his money on the grounds of mistake. On the “settled view” theory, the lawyer has to say: “No, because if you had consulted me at the time, I would have told you that you were certainly right to pay. Therefore you made no mistake.” The client asks: “Does that mean that the obligation was actually valid? If so, what has made it invalid?” The lawyer has to answer “No, the House of Lords has told us that it was always void. Nevertheless, you made no mistake. On the other hand, if lawyers had regarded it as a doubtful point, or if any lawyer would have told you then that the obligation was void, so that it would have been extremely foolish of you not to have sought advice, then you would have been able to recover.”
My Lords, it seems to me that the imaginary client would have great difficulty in understanding how these distinctions can arise out of a rule giving a remedy for unjust enrichment. In each case he thought that the obligation was valid and it has subsequently turned out that it was not. In principle, the question should not turn upon what other people might have thought was the law but upon what he thought was the law. And this has turned out to have been wrong, however many lawyers might have agreed with him at the time. So there ought to be a remedy in all cases or none. I should mention that Mr. Southwell Q.C. said in his written submissions in reply that if someone made a payment because he had been told that the Court of Appeal had decided that a person in such circumstances should do so, he would not be treated as having made a mistake when the decision was subsequently reversed. But he thought that the answer would be different if he had not been told of the decision but came to the same conclusion on first principles or by accident. He commented that this was an absurdity, which might be thought to cast doubt upon the soundness of the proposition. I think it is wrong. It does not matter why the payer thought that the law required him to pay. Retention is prima facie unjust if he paid because he thought he was obliged to do so and it subsequently turns out that he was not.
An analogy was drawn in argument between a retrospective decision of a court and a retrospective Act of Parliament. A failure to predict the latter, it was said, could not possibly be a mistake and therefore why should the former. I do not myself see why, in principle, if an Act of Parliament requires that the law be deemed to have been different on an earlier date, it should not follow that a person who acted in accordance with the law as it then was should be deemed to have made a mistake. This was the view of Mason C.J. in Commissioner of State Revenue v. Royal Insurance Australia Ltd. [1992] 182 C.L.R. 51 and I respectfully think that in principle he was right. But usually the question will turn upon the construction of the statute: it may provide expressly for the refund of money declared not to be owing, or such an obligation may be implied, or it may be argued that the failure to provide expressly for repayment showed a Parliamentary intention that transactions under the previous law should not be disturbed. I find the analogy of a retrospective Act of Parliament, which can deal with the consequences of its retrospectivity, unhelpful in dealing with a change of law by judicial decision. The judges who change the law can use only the common law to remedy any injustices which compliance with the previous law may have caused.
I therefore do not think that there are any reasons of principle for distinguishing cases in which a subsequent decision changes a settled view of the law, or, for that matter, settles what was previously an unsettled view of the law. The enrichment of the recipient is in each case unjust because he has received money which he would not have received if the payer had known the law to be what it has since been declared to have been.
There is, however, another ground for adopting the “settled view” theory and that is simply in order to preserve the security of past transactions. The argument is that where the law was thought to have been settled, there are likely to have been many transactions entered into in reliance upon it. Therefore a rule which uniformly denies recovery in such cases would, on balance, do less harm than good.
The adoption of the “settled view” rule on these grounds would be a legislative act in a sense in which the abrogation of the mistake of law rule would not. The latter rule is, as my noble and learned friend Lord Goff of Chieveley has amply demonstrated, not founded upon any defensible logic or principle. It is the proper business of your Lordships in a judicial capacity to clarify and develop the common law by restating rules in accordance with principle, even when this may require the correction of ancient heresies. But the adoption of the “settled view” rule would be founded purely upon policy; upon a utilitarian assessment of the advantages of preserving the security of transactions against the inevitable anomalies, injustices and difficulties of interpretation which such a rule would create. That is not a course which I think your Lordships should take.
I accept that allowing recovery for mistake of law without qualification, even taking into account the defence of change of position, may be thought to tilt the balance too far against the public interest in the security of transactions. The most obvious problem is the Limitation Act, which as presently drafted is inadequate to deal with the problem of retrospective changes in law by judicial decision. But I think that any measures to redress the balance must be a matter for the legislature. This may suggest that your Lordships should leave the whole question of the abrogation of the mistake of law rule to the legislature, so that the change in the law and the necessary qualifications can be introduced at the same time. There is obviously a strong argument for doing so, but I do not think that it should prevail over the desirability of giving in this case what your Lordships consider to be a just and principled decision.
I should say in conclusion that your Lordships’ decision leaves open what may be difficult evidential questions over whether a person making a payment has made a mistake or not. There may be cases in which banks which have entered into certain kinds of transactions prefer not to raise the question of whether they involve any legal risk. They may hope that if nothing is said, their counter-parties will honour their obligations and all will be well, whereas any suggestion of a legal risk attaching to the instruments they hold might affect their credit ratings. There is room for a spectrum of states of mind between genuine belief in validity, founding a claim based on mistake, and a clear acceptance of the risk that they are not. But these questions are not presently before your Lordships.
Harris -v- Quigley & anor
[2005] IESC 79 [2006] 1 ILRM 401, [2006] 1 IR 165, [2005] IESC 79
Geoghegan J
It follows therefore that the question of whether there is a common law action does arise. Until some recent case law it was assumed that money paid under a mistake of law was not recoverable by action subject to the exception of money exacted colore officii as explained by Kenny J. in his High Court judgment in Dolan v. Neligan [1967] I.R. 247. The law of restitution however has been reconsidered and revised in a number of common law jurisdictions and in particular by the House of Lords in England in Woolwich Building Society v. Inland Revenue Commissioners [1993] AC 70. The principles in Woolwich have been further elaborated upon by the House of Lords in Kleinwort Benson Limited v. Lincoln City Council [1999] 2 AC 349 and by the Court of Appeal in a judgment of Jonathan Parker LJ in Deutsche Morgan Grenfell Group plc v. Inland Revenue Commissioners [2005] EWCA Civ 78. I do not find it necessary to review in detail any of these English cases as I am quite satisfied that the principles laid down by Keane J. (as he then was) in the High Court case of O’Rourke v. The Revenue Commissioners [1996] 2 I.R. 1 correctly represent Irish law. I am equally satisfied that if the O’Rourke case is correct, which I believe it is, it governs this case and that even if the law as apparently laid down in Woolwich has the limited application suggested by Jonathan Parker LJ, that limited application is relevant to this appeal. I, therefore, propose to concentrate on the judgment of Keane J.
The facts of O’Rourke v. The Revenue Commissioners were that as a consequence of another High Court decision it was discovered that the plaintiff had, for some years, been wrongly treated as a Schedule E taxpayer when he was in fact taxable under Schedule D. As a consequence, an excessive amount of tax had been retained. Under an informal agreement the plaintiff was recouped in respect of the overpayment but the Revenue Commissioners refused to pay interest. The statutory preconditions to any statutory claim to interest did not apply to the facts of the case and as a consequence the plaintiff’s entitlement to interest, if at all, arose at common law. Keane J. allowed the claim on the basis that he agreed with the majority view of the House of Lords in the Woolwich Building Society case. He relied particularly on passages in the speeches of Lord Goff of Chievely, Lord Browne-Wilkinson and Lord Slynn of Hadley. Each of these passages is set out in the judgment but for the purposes of this appeal I think it is sufficient to cite the passage of Lord Goff which reads as follows:
“I would, therefore, hold that money paid by a citizen to a public authority in the form of taxes or other levies paid pursuant to an ultra vires demand by the authority is prima facie recoverable by the citizen as of right. As at present advised, I incline to the opinion that this principle should extend to embrace cases in which the tax or other levy has been wrongly exacted by the public authority, not because the demand was ultra vires but for other reasons, for example, because the authority has misconstrued a relevant statute or regulation. It is not, however, necessary to decide the point in the present case, and in any event cases of this kind are generally the subject of a statutory regime which legislates for the circumstances in which money so paid either must or may be repaid. Nor do I think it necessary to consider for the purposes of the present case to what extent the common law may provide the public authority with a defence to a claim for the repayment of monies so paid: though for the reasons I have already given I do not consider the principle of recovery should be inapplicable simply because the citizen has paid the money under a mistake of law.”
After setting out the three passages Keane J. commented as follows:
“It seems to me that, if the law laid down in those passages is also the law applicable in Ireland, the tax overpaid by the plaintiff was recoverable as a matter of right. It would follow automatically from that conclusion that the plaintiff was entitled to interest so as to compensate him for the unjust enrichment effected at his expense by the defendants. I do not consider that any meaningful distinction can be drawn in this context between tax paid under a regulation subsequently found ultra vires, as in the Woolwich case, and excessive amounts paid by a taxpayer because the taxing authority has misconstrued a relevant statute or regulation, which is the position. Lord Goff in the Woolwich case while not deciding the point indicated his view that it was not a significant distinction and Lord Jauncey, in the course of his dissenting opinion, dismissed it as a distinction without a difference. I would respectfully agree with those views.Similarly, while the fact that the plaintiff permitted the sums to be deducted from his payments without protest is clearly of significance in another context, dealt with at a later point in this judgment, it is clear from the passages which I have already cited that the majority decision in the Woolwich case was also founded on a wider principle i.e. that the money was paid for no consideration.”
After going on to consider whether the claim might be defeated by Murphy v. The Attorney General [1982] I.R. 241 and having concluded that having regard in particular to the limited scope of the payments it was not, Keane J. went on to approve the law as laid down in Woolwich and the obiter dicta of Lord Goff cited above.
An attempt has been made in this case on behalf of the appellants to draw a distinction between a claim for refund of tax and a claim for interest. I cannot see any validity in the distinction provided that the statute when properly interpreted does not exclude a common law claim. I have already expressed the view that it does not. I also entirely agree with Keane J. that no logical distinction can be made between tax deducted pursuant to an ultra vires SIZE=4 FACE=”Times New Roman”> regulation and tax deducted due to a mistake of interpretation on the part of the Revenue Commissioners of the relevant statute law. In this case although the determination of the Appeal Commissioner was not final and conclusive within the meaning of the Tax Acts, it was a lawful determination which then had to be put into effect by the inspector. The retention of the excessive tax as found by the Appeal Commissioner was unlawful and was tantamount to an unjust enrichment of the Revenue Commissioners at least for the period between the determination of the Appeal Commissioner and the ultimate determination of the case stated.
I believe that in the absence of a provision in the Tax Acts precluding a refund pending the determination of the case stated the appellants are bound to effect such refund. Although my views are somewhat different from those of the learned High Court judge, I agree with his conclusion and I would dismiss the appeal.
Cundy v Lindsay
(1877–78) LR 3 App Cas 459
Blackburn J
“The rule of law has been thoroughly established—the cases are numerous, and I need not cite them—that where a contract is voidable on the ground of fraud, you may avoid it, so long as the goods remain in the man’s hands who is guilty of the fraud, or in the hands of anybody who takes them from him with notice; but where a person has bonâ fide acquired an interest in the goods, you cannot, as against that person, avoid the contract. Where the goods have come into the hands of a bonâ fide purchaser you cannot take them back. The case is very closely analogous to the old common-law rule, in the case of felony or trespass. If goods are stolen or taken away by trespass, no title whatever is conferred, in general, upon a purchaser from the person who took them, however bonâ fide the purchase may have been; but if the sale be in market overt to a person who has no knowledge of the felony or trespass, then the purchaser acquires the property, notwithstanding the goods had been taken from the owner by felony or trespass. ”
House of Lords
Lord Cairns
“Now, my Lords, stating the matter shortly in that way, I ask the question, how is it possible to imagine that in that state of things any contract could have arisen between the Respondents and Blenkarn, the dishonest man? Of him they knew nothing, and of him they never thought. With him they never intended to deal. Their minds never, even for an instant of time rested upon him, and as between him and them there was no consensus of mind which could lead to any agreement or any contract whatever. As between him and them there was merely the one side to a contract, where, in order to produce a contract, two sides would be required. With the firm of Blenkiron & Co. of course there was no contract, for as to them the matter was entirely unknown, and therefore the pretence of a contract was a failure ”
Phillips v Brooks Ltd
[1919] 2 KB 243
Horridge
“I have carefully considered the evidence of the plaintiff, and have come to the conclusion that, although he believed the person to whom he was handing the ring was Sir George Bullough, he in fact contracted to sell and deliver it to the person who came into his shop.”
“The following expressions used in the judgment of Morton CJ seem to me to fit the facts in this case:
“The minds of the parties met and agreed upon all the terms of the sale, the thing sold, the price and time of payment, the person selling and the person buying. The fact that the seller was induced to sell by fraud of the buyer made the sale voidable, but not void. He could not have supposed that he was selling to any other person; his intention was to sell to the person present, and identified by sight and hearing; it does not defeat the sale because the buyer assumed a false name or practised any other deceit to induce the vendor to sell.”
Lewis v Averay
[1971] EWCA Civ [1972] 1 QB 198, , [1971] 3 All ER 907, [1971] 3 WLR 603, [1972] QB 198
Denning MR
The real question in the case is whether on the 8th May, 1969, there was a contract of sale under which the property in the car passed from Nr. Lewis to the rogue. If there was such a contract, then even though it was voidable for fraud, nevertheless Mr. Averay would get a good title to the car. But if there was no contract of sale by Mr. Lewis to the rogue – either because there was, on the face of it, no agreement between the parties, or because any apparent agreement was a nullity and void ab initio for mistake, then no property would pass from Mr. Lewis to the rogue. Mr. Averay would not get a good title because the rogue had no property to pass to him.
There is no doubt that Mr. Lewis was mistaken as to the identity of the person who handed him the cheque. He thought that he was Richard Green., a film actor of standing and worth: whereas in fact he was a rogue whose identity is quite unknown. It was under the influence of that mistake that Mr. Lewis let the rogue have the car. He would not have dreamed of letting him have it otherwise.
What is the effect of this mistake? There are two cases in our books which cannot, to my mind, be reconciled the one with the other. One of them is Phillips v. Brooks. [1919] 2 KB 243, where a jeweller had a ring for sale. The other is Ingram v. Little. [1964] 1 QB 31, where two ladies had a car for sale. In each case the story is very similar to the present. A plausible rogue comes along. The rogue says he likes the ring, or the car, as the case may be. He asks the price. The seller names it. The rogue says he is prepared to buy it at that price. He pulls out a cheque book. He writes, or prepares to write, a cheque for the price. The seller hesitates. He has never met this man before. He does not want to hand over the ring or the car not knowing whether the cheque will be met. The rogue notices the seller’s hesitation. He is quick with his next move. He says to the jeweller, in Phillips v. Brooks: ‘I am Sir George Bullough of 11 St. James’. Square”; or to the ladies, “I am P.S.A. Hutchinson of Stanstead House, Stanstead Road, Caterham’; or to the post-graduate student in the present case: “I am Richard Green, the film actor of the Robin Hood series”. Each seller checks up the information. The jeweller looks up the directory and finds there is a Sir George Bullough at 11 St. James’ Square. The ladies check up too. They look at the telephone directory and find there is a ‘P.S M. Hutchinson of Stanstead House, Stanstead Road, Caterham,’ The post-graduate student checks up too. he examines the official pass of the Pinewood Studios and finds that it is a pass for “Richard A. Green’ to the Pinewood Studios with this man’s photograph on it. In each case the seller feels that this is sufficient confirmation of the man’s identity. So he accepts the cheque signed by the rogue and lets him have the rings in the one case, and the car and log-book in the other two cases. The rogue goes off and sells the goods to a third person who buys them in entire good faith and pays the price to the rogue. The rogue disappears. The original seller presents the cheque. It is dishonoured. Who is entitled to the goods? The original seller? or the ultimate buyer? The Courts have given different answers. In Phillips v. Brooks, the ultimate buyer was held to be entitled to the ring. In Ingram v. Little the original seller was held to be entitled to the car. In the present case the Deputy County Court Judge has held the original seller entitled.
It seems to me that the material facts in each case are quite indistinguishable the one from the other. In each case there was, to all outward appearance, a contract, but there was a mistake by the seller as to the identity of the buyer. This mistake was fundamental. In each case it led to the handing over of the goods. Without it the seller would not hove parted with them.
This case raises therefore the questions What is the effect of a mistake by one party as to the identity of the other? It has sometimes been said that, if a party makes a mistake as to the identity of the person with whom he is contracting, there is no contract, or, if there is a contract, it is a nullity and void, so that no property can pass under it. This has been supposed by a reference to the French jurist; Pothier; but I have said before, and I repeat now, his statement is no part of English law. I know that it was quoted by Lord Haldane in Lake v. Simmons, [1927] AC at page 501, and, as such, misled Mr. Justice Tucker in Sowler v, Potter, [1940] 1 KB 271, into holding that a lease was void whereas it was really voidable. But it has given rise to such refinements that it is time it was dead and buried altogether. For instances in Ingram v. Little the majority of the Court suggested that the difference between Phillips v. Brooks and Ingram v. Little was that in Phillips v. Brooks the contract of sale was concluded (so as to pass the property to the rogue) before the rogue made the fraudulent misrepresentation (see 1961 1 K.B. at pages 31, 51 and 60): whereas in Ingram v. Little the rogue made the fraudulent misrepresentation before the contract was concluded. My own view is that in each case the property in the goods did not pass until the seller let the rogue have the goods Again it has been suggested that a mistake as to the identity of a person is one things and a mistake as to his attributes is another. A Mistake as to identity, it is said, avoids a contracts whereas a mistake as to attributes does not. But this is a distinction without a difference. A man’s very name is one of his attributes. It is also a key to his identity. If then, he gives a false name: is it a mistake as to his identity? or a mistake as to his attributes? These fine distinctions do no good to the law. As I listened to the argument in this case, I felt it wrong that an innocent purchaser (who knew nothing of what passed between the seller and the rogue) should have his title depend on such refinements. After all, he has acted with complete circumspection and in entire good faith whereas it was the seller who let the rouge have the goods and thus enabled him to commit the fraud. I do not, therefore, accept the theory that a mistake as to identity renders a contract void. I think the true principle is that which underlies the decision of this Court in King’s Norton Metal Co. Ltd, Edridge Merrett & Co. Ltd. (1897) 14 TLR. 98, and of Mr. Justice Horridge in Phillips v. Brooks.[1919] 2 KB 243, which has stood for these last fifty years. It is this: When two parties have come to a contract -or rather what appears, on the face of it, to be a contract -the fact that one party is mistaken as to the identity of the other does not mean that there is no contract, or that the contract is a nullity and void from the beginning. It only means that the contract is voidable, that is, liable to be set aside at the instance of the mistaken person, so long as he does so before third parties have in good faith acquired rights under it.
Applied to the cases such as the present, this principle is in full accord with the presumption stated by Lord Justice Pearce and also Lord Justice Devlin in Ingram v. Little at pages 6l and 66. When a dealing is had between a seller like Mr. Lewis and a person who is actually there present before him, then the presumption in law is that there is a contract, even though there is a fraudulent impersonation by the buyer representing himself as a different man than he is. There is a contract and with the very person there, who is present in person, liable no doubt to be avoided for fraud, but still a good contract under which title can pass unless and until it is avoided. In support of that presumption, Lord Justice Devlin quoted, not only the English case of Phillips v. Brooks, but other cases in the United States where “the Courts held that if A appeared in person before B, impersonating C, an innocent purchaser from A gets the property in the goods against B”. That seems to me to be right in principle in this country also.
In this case Mr. Lewis made a contract of sale with the very man, the rogue, who came to the flat. I say that he “made a contract” because in this regard we do not look into his intentions, or into his mind to know what he was thinking or into the mind of the rogue. We look to the outward appearances. On the face of the dealing, Mr. Lewis made a contract under which he sold the car to the rogue, delivered the car and the log-book to him, and took a cheque in return. The contract is evidenced by the receipts which were signed. It was, of course, induced by fraud. The rogue made false representations as to his identity. But it was still a contract, though voidable for fraud. It was a contract under which this property passed to the rogue, and in due course passed from the rogue to Mr. Averay, before the contract was avoided.
Though I very much regret that either of these good and reliable gentlemen should suffer, in my judgment it is Mr. Lewis who should do so.
I think the appeal should be allowed and judgment entered for the defendant.
LORD JUSTICE PHILLIIMORE: I share the regret expressed by my Lord. I think the law was conveniently stated by Lord Justice Pearce, as he then was, in the course of his judgment in Ingram v. Little, to which reference has already been made. At page 6l he said this
“Each case must be decided on its own facts. The question in such cases is this. Has it been sufficiently shown in the particular circumstances that, contrary to the prima facie presumption” — and I would emphasise those words — “a party was not contracting with the physical person to whom he uttered the offer, but with another individual whom (as the other party ought to have understood) he believed to be the physical person present. The answer to that question is a finding of fact.”
Now, in that particular case the Court of Appeal, by a majority and in the very special and unusual facts of the case, decided that it had been sufficiently shown in the particular circumstances that, contrary to the prima facie presumption, the lady who was selling the motor car was not dealing with the person actually present. But in the present case I am bound to say that I do not think there was anything which could displace the prima facie presumption that Mr. Lewis was dealing with the gentleman present there in the flat – the rogue. It seems to me that when, at the conclusion of the transaction, the car was handed over, the log book was handed over, the cheque was accepted and the receipts were given, it is really impossible to say that a contract had not been made. I think this case really is on all fours with Phillips v. Brooks, which has been good law for over 50 years. True the contract was induced by fraud, and Mr. Lewis, when he discovered that he had been defrauded, was entitled to avoid it, but in the meanwhile the rogue had parted with the property in this motor car which he had obtained to Mr. Averay, who bought it bona fide without any notice of the fraud, and accordingly he thereby, as I think, acquired a good title. This action was in my judgment one which was bound to fail. I think the Judge was wrong in the decision to which he came and this appeal must be allowed.
LORD JUSTICE MEGAW: For myself, with very great respect, I find it difficult to understand the basis, either in logic or in practical considerations, of the test laid down by the majority of the Court in Ingram v. Little. That test is I think accurately recorded in the headnote at page 31 of the report, as follows; –
“where a person physically present and negotiating to buy a chattel fraudulently assumed the identity of an existing third person, the test to determine to whom the offer was addressed was how ought the promisee to have interpreted the promise.”
The promisee, be it noted, is the rogue. The question of the existence of a contract and therefore the passing of property, and therefore the right of third parties, if this test is correct, is made to depend upon the view which some rogue should have formed, presumably knowing that he is a rogue, as to the state of mind of the opposite party to the negotiation, who does not know that he is dealing with a rogue.
However that may be, and assuming that the test as so stated is indeed valid, in my view this appeal can be decided on a short and simple point. It is the point which was put at the outset of his argument by Mr. Titheridge on behalf of the defendant appellant. The well-known textbook on the Law of Contract, Cheshire and Fifoot, in the 7th edition at pages 213 and 214, deals with the question of invalidity of a contract by virtue of unilateral mistake, and in particular unilateral mistake relating to mistaken identity. The learned editors of that work describe what in their submission are certain facts that must be established in order to enable one who seeks to avoid what to all appearances was a contract to avoid that contract on the basis of unilateral mistake by him as to the identity of the opposite party. The first of those facts is that at the time when he made the offer he regarded the identify of the offeree as a matter of vital importance. To translate that into the facts of the present case, it must be established that at the time of offering to sell his car to the rogue, Mr. Lewis regarded the identity of the rogue as a matter of vital importance. In my view, Mr. Titheridge is abundantly justified on the notes of the evidence and on the findings of the learned Judge in his submission that the mistake of Mr. Lewis went no further than a mistake as to the attributes of the rogue. It was simply a mistake as to the creditworthiness of the man who was there present and who described himself as Mr. Green. I should say that I think the learned Judge may possibly have been to some extent misled, because he seems to have assumed that the evidence given by the lady who is now Mrs. Lewis and who was then the plaintiffs fiancée was of some assistance. The learned Judge refers in many places to “they saw” or “they thought”. That is all very well, if there were evidence that the plaintiff himself heard or knew the same things as the fiancée heard or knew, or if she, having heard, for example, the name of Mr. Green when he first arrived, had mentioned that fact to Mr. Lewis. But there was no such evidence, and therefore all that the learned Judge recites about what Miss Kershaw heard and thought appears to me, with great respect, not to assist in this matter. When one looks at the evidence of the plaintiff, Mr. Lewis himself, it is, I think, clear, as Mr. Titheridge submits, that there was not here any evidence that would justify the finding that he, Mr. Lewis, regarded the identity of the man who called himself Mr. Green as a matter of vital importance.
I agree that the appeal should be allowed.
Ingram v Little
[1960] EWCA Civ 1
Sellers LJ
Where two parties are negotiating together and there is no question of one or the other purporting to act as agent for another and an agreement is reached the normal and obvious conclusion would no doubt be that they are the contracting parties. A contrary finding would not be justified unless very clear evidence demanded it. The unfortunate position of the Defendant in this case illustrates how third parties who deal in good faith with the fraudulent person may be prejudiced.
The mere presence of an individual cannot however be conclusive that an apparent bargain he may make is made with him. If he were disguised in appearance and in dress to represent someone else and the other party, deceived by the disguise, dealt with him on the basis that he was that person and would not have contracted had he known the truth then, it seems clear, there would be no contract established. If words are substituted for outward disguise so as to depict a different person from the one physically present in what circumstances would the result be different?
Whether the person portrayed, by disguise or words, is known to the other party or not is important in considering whether the identity of the person is of any moment or whether it la a matter of indifference. If a man said his name was Brown when it was in fact Smith and both were unknown to the other party it would be difficult to say that there was any evidence that the contract was not made and intended to be made with the person present. In King’s Norton Metal Co. Ltd. v. Edridge Merrett & Co.Ltd. 1897 14 T.L.R. 98 one Wallis fraudulently described himself as Hallam & Co. making it appear a substantial firm with a large factory. The court held that the use of an assumed name by the buyer did not prevent a finding that the plaintiffs, the sellers of some brass rivet wire, had contracted with him.
But personal knowledge of the person fraudulently represented cannot I think be an essential feature. It might be a very strong factor but the qualities of a person not personally known might be no less strong. If a man misrepresented himself to be a Minister of the Crown or a stockbroker confidence in the person so identified might arise although the individual so described was wholly unknown personally or by eight to the other party.
It would seem that there is an area of fact in cases of the type under consideration where a fraudulent person is present purporting to make a bargain with another and that the circumstances may justify a finding that notwithstanding some fraud and deceit the correct view may be that a bargain was struck with the person present or on the other hand they may equally justify, as here, a finding the other way.
Some of the difficulties and perhaps confusion which have arisen in some of the cases do not in my view arise here.
If less had been said by the rogue and if nothing had been done to confirm his statements by Miss Hilda Ingram who communicated what she had learnt to Miss Elsie who was doing the main negotiation the result might have been different, for the sellers’ concern about the stability and standing of the buyer might not have been revealed and it might have been held that an offer in such circumstances was to the party present, whatever his true identity would be.
In Phillips v. Brook the rogue North had apparently been in the shop some time inspecting goods which were brought and displayed for sale to him without any regard to his identity -he was a “customer” only. The judgment of Mr. Justice Horridge is, as I read it, based on a finding of fact that Phillips intended to deal with North as a customer. Lord Haldane in Lake v. Simmons, 1927 A.C. page 487 has taken the view that the case could be explained on the ground that the fraudulent misrepresentation was not made until after the parties had agreed upon a sale.
That opinion has been criticised mainly I think by academic writers but if, as must be conceded, it is a possible view and as Phillips v. Brooks has stood for so long and is, as I think, a decision within an area of fact, I would not feel justified in saying it was wrong.
It is not an authority to establish that where an offer or acceptance is addressed to a person (although under a mistake as to his identity) who is present in person then it must in all circumstances be treated as if actually addressed to him. I would regard the issue as a question of fact in each case depending on what was said and done and applying the elementary principles of offer and acceptance in the manner in which Mr. Justice Slade directed himself.
The judgment quotes extensively from the Article by Dr. Goodhart, the learned Editor of the Law Quarterly Review, called “Mistake as to identity in the Law of Contract,” 1941 Law Quarterly Review, Volume 57 page 228 and I would join the learned Judge in his expression of indebtedness to him. Referring to Phillips v. Brooks Dr. Goodhart asks
“Did the shopkeeper believe that he was entering into a contract with Sir George Bullough and did North know this? If both answers are in the affirmative then it is submitted that there was no contract.”
I think there may be a doubt in that case whether both the answers should have been in the affirmative but on the facts of the present case I feel no doubt and 1 would uphold the learned Judge’s view of no contract.
Dr. Goodhart may well be right when he says that “There is no branch of the Law of Contract which is more uncertain and difficult” than that involved in this case, and I am conscious that our decision here will not have served to dispel the uncertainty.
The recent case in the New Zealand Courts Fawcett v. Star Car Sales Ltd, 1960 New Zealand Law Reports, page 406 has also produced a division of opinion, President Gresson taking a different view from Mr. Justice North and Mr. Justice Cleary in the Appellate Court who upheld the judgment of Mr. Justice Hardie Boys that a mistake by a purchaser as to the identity of a person with whom he is dealing does not necessarily invalidate any sale which takes place. Mr. Justice North put the question thus on page 425:
“Does the purchaser of a chattel who pays “the price asked by the true owner and takes delivery of the “chattel from the true owner require a good title if it so “happens that he is told and believes he is not dealing with the “previous owner who he wrongly thinks is still the true owner.”
In that case which was also the case of the purchase of a motorcar, the purchase of the car had not been completed by the purchaser and judgment had been obtained against him. In the action he was seeking to establish that no contract of sale of the car had been made by the purchaser, Mr. Justice North said on page 426 “In my view the vital and indeed all-important “matter was the representation made by Mrs. Davies that she was “the true owner of the motor car. The name of Mrs. Fawcett’ “meant nothing to the purchaser. All he was interested in was “to ensure that he was dealing with the true owner, and indeed “he was. His eyes as well as his mind rested on Mrs. Davies. “In my opinion then the representation that the person present “negotiating the sale was ‘Mrs. Fawcett’ amounted to no more than “a false description.” Mr. Justice Cleary on page 431 says; “Mr. Gould believed that the woman before him was Mrs. Fawcett “(which she was not) and was the owner of the car (which for “the present purposes she was) and he was in fact dealing with “a person able to make title to the car. In my view there was “not merely one side to a contract but a contract in fact, “voidable it is true, but one under which the property passed “from the owner to the purchaser notwithstanding the false name “assumed by the owner.” The majority of the Court therefore could not accept the view that a contract was entered into. That case reveals the difficulties of the problem. It turns, I think, on the view taken of the facts and apart from a comprehensive review of the authorities made by the President Gresson I do not think it is helpful in the present case.
The question in each case should be solved in my opinion by applying the test which Mr. Justice Slade applied “How ought “the promisee to have interpreted the promise” in order to find whether a contract has been entered into.
I am in agreement with the learned Judge when he quotes, accepts and applies the following passage from Dr. Goodhart’s article –
“It is the interpretation of the promise which is the essential thing. This is usually based on the interpretation which a reasonable man, in the promisee’s position, would place on it, but in those cases where the promisor knows that the promisee has placed a peculiar interpretation on his words, then this is the binding one. The English law is not concerned with the motives of the parties nor with the reasons which influenced their actions. For practical reasons it has limited itself to the simple questions: what did the promisor promise, and how should this be interpreted?”
Phillips v. Brooks is the closest authority on which the Appellant relies. Once that is distinguished on its facts, without going so far as to say it is wrong, authority leans strongly in favour of the judgment appealed from.
Gundy v. Lindsay. 1878 2 Appeal Cases 459, on the findings of the Court of Appeal and the House of Lords, was to the same effect as the present case. The plaintiffs intended to sell to Blenkiron & Co. but Blenkiron fraudulently assumed the position of the buyer. Therefore an offer to sell to Blenkiron & Co. was knowingly “accepted” by Blenkiron and there was no contract.
But as the learned authors of Cheshire & Fifoot on the Law of Contract 5th Edition at page 197 point out another view of the facts of that case might have been that “the plaintiffs, “though deceived by the fraud of Blenkiron intended or were at “least content to sell to the person who traded at 37 Wood Street “from which address the offer to buy had come and to which the “goods were sent. If this were the true position there was a “contract with Blenkiron of 37 Wood Street though one that was “voidable against him for his fraud.”
Blenkiron & Co’s address was 123 Wood Street and the three judges of the Queens Bench Division had taken this view.
Hardman v. Booth 1863 1 Hurlstone & Coltman 803 more closely supports the judgment in the present case. One of the plaintiff was fraudulently persuaded by Edward Gandell that he was a member of Gandell & Co. which in fact consisted only of Thomas Gandell. It was held that there was no contract since the plaintiff’s offer was made to Thomas only as Edward knew to be the fact, and therefore he could not accept it himself.
The legal position la, I think, well illustrated by Dr. Goodhart in the article already referred to. There la a difference between the case where A makes an offer to B in the belief that B is not B but is someone else and the case where A makes an offer to B in the belief that B is X. In the first case B does in fact receive an offer even though the offeror does not know that it is to B he is making it, since he believes B to be someone else. In the second case A does not in truth make any offer to B at all; he thinks B is X, for whom alone the offer is meant. There was an offer intended for and available only to X. B cannot accept it if he knew or ought to have known that it was not addressed to him.
The judgment has quoted and referred to Pothier’s statement of the Law and I have observed that Dr. Goodhart concludes his article by saying that “it is certainly time that Pothier’s “statement was firmly and finally buried.”
Mr. Justice Slade would have held equally for the plaintiffs if he had applied the subjective test which Pothier seems to stipulate. Pothier’s statement has been cited in several English cases by Mr. Justice Fry in Smith v. Wheatcroft, 1879 9 Chancery Division 723, a case of specific performance, and in this Court in Gordon v. Street, 1899 26 Queens Bench 641, and followed in Sowler v. Potter, 1940 1 Kings Bench 271.
Having regard to the Judge’s finding that whichever view he takes it does not affect his decision, I do not feel the occasion appropriate to consider further the part that Pothier’s views should play in English law.
If it is the formation of a contract which calls for consideration, as it is here, “How ought the promisee to have interpreted the promise” is in my opinion the correct approach, as the Judge has held; but I recognise that the correct answer may not always prove as ascertainable as I believe it to be in the present case.
Devlin LJ (dissenting)
In the textbooks cases of mistaken identity are to be found both in the chapters that deal with the formation of contract and in those that deal with the effect of mistake. Whichever way it is looked at, the essential question is the same: has a contract been made? If the fatal defect goes to form, the question is answered with a simple negative and the case is put under the head of formation. If the defect is one of substance, that is, where the outward form is complete but the necessary consensus is vitiated by mistake, the question is answered by saying that the contract is void. It may be objected that a void contract is a meaningless expression; but it is a useful one to describe a contract that is perfect in form but void of substance. There is also this practical difference. It is for the plaintiff to prove offer and acceptance in form. But mistake is a ground of defence and it is for the defendant to plead it and assert that the contract is not what it seems to be. If the contract is complete on the surface, as when it is a formal document, the burden will be on him from the outset. But in oral contracts it may well be in question whether that is a contract even in appearance.
So the first thing for a judge to do is to satisfy himself that the alleged contract has been properly formed and Dr. Goodhart in the article that the learned judge has adopted has shown how easy it is to fall into error if one does not begin with that. There must be offer and acceptance. The offer must be addressed to the offeree, either as an individual or as a. member of a class or of the public. The acceptance must come from one who is so addressed and must itself be addressed to the offeror. Boulton v. Jones (1857) 2 Hurlstone & Norman, 563, for example, is a simple case in which an offer was accepted by someone to whom it was not addressed. The classic case of Cundy v. Lindsay (1873) 3 Appeal Cases, 459, was one in which the acceptance was not addressed to the offeror. The offer, as in the instant case, was addressed to a person who held himself out as willing to do business. But the offer was made by Blenkarn and the acceptance addressed to Blenkiron. The fact that there was a real Blenkiron whom Blenkark was pretending to be showed that it was not a case of falsa demonstratio nonnocet. It is noteworthy that the word “mistake” is not mentioned in the judgments of either of these cases.
Before therefore I consider mistake, I shall inquire whether there is offer and acceptance in form. There is no doubt that H’s offer was addressed to Miss Ingram and her acceptance apparently addressed to him. But, it is argued, the acceptance was in reality addressed to P.G.M. Hutchinson, who was not the offeror, and therefore no contract was made. There can be no doubt upon the authorities that this argument must be settled by enquiring with whom Miss Ingram intended to contract: was it with the person to whom she was speaking or was it with the person whom he represented himself to be? it has been pressed upon us that this is a question of fact and that we ought to give great weight to the answer to it provided by the trial judge. It is, I think, a mixed question. I am sure that any attempt to solve it as a pure question of fact would fail. If Miss Ingram had been asked whether she intended to contract with the man in the room or with Mr. P.G.M.. Hutchinson, the question could have no meaning for her since she believed them both to be one and the same. The reasonable man of the law – if he stood in Miss Ingram’s shoes – could not give any better answer. Whether it is fact or law, it is not a question that the trial judge is any better equipped to answer than we are. In saying that, I must acknowledge that I am with diffidence refusing the guidance offered by Viscount Sumner in Lake v. Simmons (1927) Appeal Cases, 487, at 503:
“The conclusion that his state of mind was an appearance of consent produce by the trick and not a real consent induced by fraud is a judicial conclusion from the circumstances proved, from the evidence of the victim as to what was said and done, what he believed, and what he would or would not have done in the absence of that belief, and finally, from the judge’s own view of the ability of the witness himself to analyse and explain his own mental processes with tolerable exactness. A conclusion from these materials is greatly assisted by seeing him and judging what manner of man he is”.
I hope that I am not diminishing the province of the trial judge which I should always wish to honour and respect. But I cannot understand how observation of the witness can detect whether his consent was produced by a trick or induced by fraud; I doubt whether an analysis of his mental processes would help either,. All that Miss Ingram or any other witness in her position can say is that she did in fact accept the offer made to her; and that if she had not been tricked or deceived, she would not have accepted it.
Courts of law are not inexperienced in dealing with this sort -of situation. They do go by means of presumptions. Let me take as an example the law that governs a contract. This depends on the intentions of the parties, but no-one ever attempts to ascertain their intentions by question and answer. The answer would almost invariably be that neither of the parties had thought about the matter at all. If one of them were pressed to say what law he would have chosen if he had thought about it, he would naturally tend to opt for the law that would be most favourable to him in the circumstances of the dispute that had brought him to Court.
In the present type of case the answer to a similar type of question might be equally misleading; as the deceived party in the present case, the plaintiff wants the contract declared void ab initio; as the deceived party in the recent case of Fawcett v. Star Sales (supra) the defendant wanted it affirmed. The Court therefore has to work on the presumed intention of the parties. In the case of conflict of laws there is a number of presumptions which the Court uses, such as that the parties are presumed to -intend the law of the country where they have provided for arbitration, if such be the case, or the law of the place where the contract was made. Whether the Court when it acts in this way is really ascertaining the intentions of the parties or whether it is simply providing a just solution of their difficulties is a theoretical question which I need not explore. Lord Wright has gome penetrating observations to make about the problem as it arises in cases of frustration: see Fibrosa v. Fairbairn (1943) Appeal Cases 32 at 70 and Denny Mott v. Fraser (1944) Appeal Cases at 275.
In my judgment the Court cannot arrive at a satisfactory solution in this case except by formulating a presumption and taking it at least as a starting point. The presumption that a person is intending to contract with the person to whom he is actually,-the words of contract seems to me to be a simple and sensible one and supported by some good authority. It is adopted in Benjamin on Sale, 8th edition, page 102, where two decisions in the United States are referred to, Edmunds v. Merchants Despatch (1883) 135 Massachusetts Reports, 283, and Phelps v. McQuade (1917) 220 New York Reports, 232. The reasoning in the former case was adoped by Mr. Justice Horridge in Phillips v. Brooks (1919) 2 King’s Bench, 243, and the latter case is a decision of the New York Court of Appeals. All these three cases still stand as the law in their respective jurisdictions. Corbin on Contracts, vol. 3, s.602, cites them and a number of others and states the general principle in the United States as follow: “The Courts held that if A appeared in person before B, impersonating C, an innocent purchaser from A gets the property in the goods against B”.
I do not think that it can be said that the presumption is conclusive since there is at least one class of case in which it can be rebutted. If the person addressed is posing only as an agent, it is plain that the party deceived has no thought of contracting with him but only with his supposed principal; if then there is no actual or ostensible authority, there can be no contract. Hardman v. Booth (1863) 1 Hurlstone & Coltman 803, is, I think, an example of this. Are there any other circumstances in which the presumption can be rebutted? It is not necessary to strain to find them, for we are here dealing only with offer and acceptance; contracts in which identity really matters may still be avoided on the ground of mistake. I am content to leave the question open and do not propose to speculate on what other exceptions there may be to the general rule. What seems plain to me is that the presumption cannot in the present case be rebutted by piling up the evidence to show that Miss Ingram would never have contracted with H unless she had thought him to be Mr, P.G.M. Hutchinson. That fact is conceded and, whether it is proved simpliciter or proved to the hilt, it does not go say further than to show that she was the victim of fraud. With great respect to the learned judge the question that he propounded as the test is not calculated to show any more than that. He said:
“Is it to be seriously suggested that they were willing to accept the cheque of the rogue other than in the belief, created by the rogue himself, that he, the rogue, was in fact the honest Mr. P.G.M. Hutchinson of the address in Caterham with the telephone number which they had verified?”.
In my judgment there is everything to show that Miss Ingram would never have accepted H’s offer if she had known the truth, but nothing to rebut the ordinary presumption that she was addressing her acceptance, in law as well as in fact, to the person to whom she was speaking. I think therefore that there was offer and acceptance in form.
On my view of the law it therefore becomes necessary to consider next whether there has been a mistake that vitiates the contract. As both my brethren are of opinion that there has been no offer and acceptance, the result of this further enquiry cannot affect the decision in this case or its ratio, and I shall therefore state my conclusions and my reasons for it as briefly as may be.
In my judgment there has been no such mistake. I shall assume without argument what I take to be the widest view of mistake that is to be found in the authorities; and that is that a mistake avoids the contract if at the time it is made there exists some state of fact which, as assumed, is the basis of the contract and, as it is in truth, frustrates its object. Cases of mistaken identity have usually been dealt with in the authorities by the application of the test propounded by Pothier in his Law of Contracts (1803) page 13, where he says: “Wherever the consideration of the person with whom I contract is an ingredient of the contract which I intend to make, an error respecting the person destroys ay consent, and consequently annuls the agreement”. If this is wider than the principle I have stated, I do not think it can be part of the law of England, tor I can see no reason why mistake as to identity should operate more easily to avoid a contract than any other sort of mistake. If Pothier is correctly interpreted, the word “ingredient” is very wide; but the examples which he gives to illustrate his proposition are examples in which mistaken identity would generally destroy a fundamental assumption and frustrate the object of the contract. The whole object of contracting for a portrait, for instance, is to have it done by the particular artist selected and so his identity is normally essential.
The fact that Miss Ingram refused to contract with H until his supposed name and address had been “verified” goes to show that she regarded his identity as fundamental. In this she was misguided. She should have concerned herself with creditworthiness rather than with identity. The fact that H gave Mr. P.G.M. Hutchinson’s address in the directory was no proof that he was Mr. P.G.M. Hutchinson; and if he had been, that fact alone was no proof that his cheque would be met. Identify therefore did not really matter. Nevertheless, it may truly be said that to Miss Ingram, as she looked at it, it did. In my judgment Miss Ingram’s state of mind is immaterial to this question. When the law avoids a contract ab initio, it does so irrespective of the intentions or opinions or wishes of the parties themselves. That is the rule in the case of frustration; see Hirji Mulji v. Cheong, (1926)Appeal Cases 497. It is the rule also in a case such as Scammell v. Ouston (1941) Appeal Cases 261, where the parties believed them selves to have contracted but had failed to reach agreement on essentials with sufficient particularity. This rule applies in the case of mistake because the reason for the avoidance la the same, namely, that the consent is vitiated by non-agreement about essentials. It is for the Court to determine what in the light of all the circumstances is to be deemed essential. In my judgment, in this case H’s identity was immaterial. The credit worthiness was not, but creditworthiness in relation to contract is not a basic fact; it is only a way of expressing the belief that each party normally holds that the other will honour his promise.
I wish that I could conclude this judgment without any reference to Lake v. Simmons (1926) 1 King’s Bench, 366; (1926) 2 King’s Bench, 51; (1927) Appeal Cases, 487, for that is a case with which I find it very difficult to deal briefly. But if, as is often suggested, the ratio decidendi in the House of Lords is that enunciated by Viscount Haldane in the leading speech, I should find it impossible to distinguish the present case satisfactorily. I must therefore embark on the difficult task of ascertaining what the true ratio is.
I do not think that the reasoning in the case can properly be analysed without some introductory observations about larceny by a trick. I base them on the judgment of Mr. Justice Sellers, as he then was, in Du Jardin v. Beadman (1952) 2 Queen’s Bench, page 712. The history of the offence la fully set out in Russell on Crime, 11th edition, page 1036, and I give below only the bare account of it that is necessary for my purpose. Larceny at common law required that there should be an asportavit or taking of the goods with intent to steal. This produced a difficulty in the case of a bailee who got possession of the goods lawfully; he could not thereafter be guilty of larceny by appropriating them, however dishonestly. This difficulty was finally removed by statute in 1857 when the offence of larceny by a bailee was created. “In the meantime” as Russell says at page 1041, “the judges had found themselves forced to adopt strange contortions of reasoning in order to justify the conviction of dishonest men”. The difficulty which had to be got round was that the bailee had taken the chattel with the consent of the owner. In R. v. Pear (1779) 2 East, Privy Council, 685, the Court decided, that if a horse was hired with the intention of stealing it, the fraudulent intention of the bailee at the inception of the transaction in some way negatived in law the consent of the owner to do what he in fact did. Therefore there was a taking without consent, which came to be called larceny by a trick, But the Courts restricted this doctrine to the transfer of possession; and they always refused to apply it to a case where what was in issue was the transfer of property. It is perhaps for this reason that we have not been troubled here by any argument about larceny by a trick. But there has been a great difference of opinion whether this notion of consent should or should not be imported into other branches of the law, particularly liability under the Factors Act. Until recently, the ruling judgments on this point have been obiter; but I trust that the law may now be regarded as settled by the decision of Mr. Justice Sellers in Du Jardin v. Beadman (supra) where he held that “consent” in the Factors Act was not to be interpreted in an artificial way in order to bring it into harmony with the criminal law. I need not pursue the controversy further. Its only importance for my purpose is so that the speech of Viscount Sumner, which I think to be crucial in Lake v. Simmons, is properly understood.
The facts in Lake v. Simmons centred round a woman who was living with a Van der Borgh, and who had dealings with the plaintiff, a jeweller. She falsely represented to him that she was Mrs. Van der Borgh and she obtained jewellery from him by falsely representing that she desired to show it to her husband for his approval, and also to a person she named as Commander Digby, who did not in fact exist. She made away with the jewellery and the plaintiff sued to recover his loss under a Lloyd’s policy, the defendant being an underwriter. The policy was against (inter alia) theft, but subject to an exception on which the argument turned. A convenient summary of its essential terms is given by Lord Sumner at page 507:
“The exception clause takes out of the stipulated cover against ‘thefts’ generally … those committed by customers … but only when, the words ‘in respect of goods entrusted to them by the assured’ are satisfied.”
All three courts held that there was a theft, i.e., larceny by a trick, and, accordingly, that the loss fell within the general words. There was, however, much difference of opinion about the operation of the exception. Mr. Justice McCardie held at (1926) 1 King’s Bench, 382 that the jewellery was not entrusted to the woman as a customer, but that she received it as a mere agent or messenger for the purpose of showing it to others. He, therefore, decided in favour of the plaintiff. His decision was reversed by a majority in the Court of Appeal. None of the Lords Justices accepted his view that the woman was not a customer and the decision turned on the meaning of “entrusted.” Lord Justices Bankes and Warrington held that there was an entrusting within the exception so that the loss fell outside the policy. Lord Justice Atkin held that there was not. He said at (1926) 2 King’s Bench 71, that the word “entrust” implied a consensual act and that the fact of larceny negatived consent both in criminal and in civil matters. It would be absurd to hold, he thought, that the woman could both take the goods without the consent of the true owner for the purpose of larceny by a trick and be “entrusted” with the goods by the true owner.
In the House of Lords the decision of the Court of Appeal was reversed. Viscount Haldane at page 499 that for the purpose of an entrusting within the meaning of the policy there must be a definite contract. He held that there was never any contract at all, because the plaintiff was entirely deceived as to the identity of the person with whom he was transacting; it was only on the footing and in the belief that she was Mrs. Van der Borgh that he was willing to deal with her at all. This is a bare summary of his reasoning; it is sufficient for my purpose to say that it is clear authority for the view from which I am dissenting. None of the rest of their Lordships expressly followed Viscount Haldane. Lord Atkinson’s opinion turned on the construction of the policy. He held that the entrusting within the exception could not mean the delivery in all good faith by a dealer of goods to a customer which that customer had planned to steal. He also inclined to McCardie J.’s view that the woman was not a customer. Lord Blanesburgh based his conclusion on the simple ground that the woman was not a customer, but entirely agreed with the judgment of Viscount Sumner. Lord Wrenbury 111 simply concurred.
It is clear, therefore, that Lord Haldane’s reasoning can be accepted as the ratio decidendi only if it was assented to by Lord Sumner. I know that the fault must be mine, but I find the speech of Lord Sumner very difficult to interpret. I think that the operative part of his reasoning begins at page 507 after he has set out the policy. He gave a special meaning to the word “entrusted,” derived from the use of the same word in an earlier part of the policy. He held that it meant entrusted on the condition of sale or return. He held that there was not an entrusting to the woman on this condition; if there was an entrusting, it was either to Van der Borgh or Commander Digby, one of whom was imaginary and the other was not a customer. That was his first reason. The second reason at page 508 was, I think, an acceptance of Lord Justice Atkin’s view of the effect of larceny by a trick. Finally, he agreed that the woman was not a customer for the purpose of the exceptions clause.
But, before he gave this statement of his reasons, he made a number of observations that might suggest that he was agreeing with the view expressed by Lord Haldane, though he never in fact said so. At page 505 he says this:
“Again, if Mr. Lake consented to nothing, analogies from the distinction between void and voidable contracts are beside the mark, and equally so are arguments which turn on consensus ad idem as an ingredient in the conclusion of a contract … As it is, there was no contract and nothing to avoid.”
I have italicised the word “if” because I think that what appears to be a positive statement that “there was no contract and nothing to avoid” is based upon the hypothesis that Lake consented to nothing. I think this must be so, for, in the next paragraph Lord Sumner said:
“the next step is to consider whether anything can be imputed to Mr. Lake which would be equivalent to his consent.”
I think that the clue to what Lord Sumner is saying in this part of his speech is on the next page where he saus:
“Such facts may raise difficulties in deciding whether his frame of mind involved misplaced consent or was consistent with absence of any consent at all, but the conclusion that it was such as would negative the appearance of consent and so remove the difficulty in the way of proving an asportavit, concludes the whole issue.”
He elucidates this with three examples, one of which, a case of a confidence trick man, posing as a benevolent millionaire, would certainly not be a ground for avoiding a contract.
I think that Lord Sumner is neither agreeing nor disagreeing with Lord Haldane. What he is saying is that Lord Haldane’s reasoning is not to the point as he, Lord Sumner, sees it. Distinction between void and voidable contracts are beside the mark and so are arguments which turn on consensus. The thing is concluded by the fact there is larceny by a trick. In other words, Lord Sumner is agreeing with Lord Justice Atkin and is refusing to distinguish between the sort of lack of consent that goes to make larceny by a trick and the sort that avoids a contract, though he at page 510 reserved his judgment about “consent” in the Factors Act. In my judgment, therefore, the ratio decidendi of Lake v. Simmons turns on the construction of the policy, and the only view for which there is a clear majority is the view that the woman was not a customer. Certainly there is no support for the opinion of Lord Haldane in any of the other speeches and, though I recognise his great authority, I prefer to follow Phillips v. Brooks Ltd. (supra), the cases in the United States to which I have referred, and the decision of the majority of the Court of Appeal in the recent case in New Zealand, Fawcett v. Star Car Sales Ltd (supra).
There can be no doubt, as all this difference of opinion shows, that the dividing line between voidness and voidability, between fundamental mistake and incidental deceit, is a very fine one. That a fine and difficult distinction has to be drawn is not necessarily any reproach to the law. But need the rights of the parties in a case like this depend on such a distinction? The great virtue of the common law is that it sets out to solve legal problems by the application to them of principles which the ordinary man is expected to recognise as sensible and just; their application in any particular case may produce what seems to him a hard result, but as principles they should be within his understanding and merit his approval. But here, contrary to its habit, the common law, instead of looking for a principle that is simple and just, rests on theoretical distinctions. Why should the question whether the defendant should or should not pay the plaintiff damages for conversion depend upon voidness or voidability, and upon inferences to be drawn from a conversation in which the defendant took no part? The true spirit of the common law is to override theoretical distinctions when they stand in the way of doing practical justice. For the doing of justice, the relevant question in this sort of case is not whether the contract was void or voidable, but which of two innocent parties shall suffer for the fraud of a third. The plain answer is that the loss should be divided between them in such proportion as is just in all the circumstances. If it be pure misfortune, the loss should be borne equally; if the fault or imprudence of either party has caused or contributed to the loss, it should be borne by that party in the whole or in the grdater part. In saying this, I am suggesting nothing novel, for this sort of observation has often been made. But it is only in comparatively recent times that the idea of giving to a court power to apportion loss has found a place in our law. I have in mind particularly the Law Reform Acts of 1935, 1943 and 1945, that dealt respectively with joint tortfeasors, frustrated contracts and contributory negligence. These statutes, which I believe to have worked satisfactorily, show a modern inclination towards a decision based on a just apportionment rather than one given in black or in white according to the logic of the law. I believe it would be useful if Parliament were now to consider whether or not it is practicable by means of a similar act of law reform to provide for the victims of a fraud a better way of adjusting their mutual loss than that which has grown out of the common law.
Shogun Finance Ltd v. Hudson
[2003] UKHL 62 [2004] 1 AC 1101, [2004] 1 LLR 532, [2004] 1 All ER (Comm) 332, [2003] 3 WLR 1371, [2004] RTR 12, [2004] 1 All ER 215, [2004] 1 AC 919, [2004] AC 1101, [2004] 1 Lloyd’s Rep 532
Lord Phillips
Formation of contract
A contract is normally concluded when an offer made by one party (‘the offeror’) is accepted by the party to whom the offer has been made (‘the offeree’). Normally the contract is only concluded when the acceptance is communicated by the offeree to the offeror. A contract will not be concluded unless the parties are agreed as to its material terms. There must be ‘consensus ad idem’. Whether the parties have reached agreement on the terms is not determined by evidence of the subjective intention of each party. It is, in large measure, determined by making an objective appraisal of the exchanges between the parties. If an offeree understands an offer in accordance with its natural meaning and accepts it, the offeror cannot be heard to say that he intended the words of his offer to have a different meaning. The contract stands according to the natural meaning of the words used. There is one important exception to this principle. If the offeree knows that the offeror does not intend the terms of the offer to be those that the natural meaning of the words would suggest, he cannot, by purporting to accept the offer, bind the offeror to a contract – Hartog v Colin and Shields [1939] 3 All ER 566; Smith v Hughes (1871) LR 6 QB 597. Thus the task of ascertaining whether the parties have reached agreement as to the terms of a contract can involve quite a complex amalgam of the objective and the subjective and involve the application of a principle that bears close comparison with the doctrine of estoppel. Normally, however, the task involves no more than an objective analysis of the words used by the parties. The object of the exercise is to determine what each party intended, or must be deemed to have intended.
The task of ascertaining whether the parties have reached agreement as to the terms of a contract largely overlaps with the task of ascertaining what it is that the parties have agreed. The approach is the same. It requires the construction of the words used by the parties in order to deduce the intention of the parties – see Chitty on Contracts , 28th Ed Volume 1, paragraphs 12-042,3 and the cases there cited. This is true, whether the contract is oral or in writing. The words used fall to be construed having regard to the relevant background facts and extrinsic evidence may be admitted to explain or interpret the words used. Equally, extrinsic evidence may be necessary to identify the subject matter of the contract to which the words refer.
Just as the parties must be shown to have agreed on the terms of the contract, so they must also be shown to have agreed the one with the other. If A makes an offer to B, but C purports to accept it, there will be no contract. Equally, if A makes an offer to B and B addresses his acceptance to C there will be no contract. Where there is an issue as to whether two persons have reached an agreement, the one with the other, the courts have tended to adopt the same approach to resolving that issue as they adopt when considering whether there has been agreement as to the terms of the contract. The court asks the question whether each intended, or must be deemed to have intended, to contract with the other. That approach gives rise to a problem where one person is mistaken as to the identity of the person with whom he is dealing, as the cases demonstrate. I propose at this point to consider those cases.
The decided cases
In Boulton v Jones (1857) 27 LJ Ex 117 the owner of a shop named Brockenhurst sold his stock-in-trade and assigned his business to the plaintiff. The same day the plaintiff received an order in writing, addressed to Brockenhurst, from the defendant. The defendant had had previous dealings with Brockenhurst and proposed to set off against the price a debt owed by Brockenhurst. The plaintiff supplied the goods and the defendant consumed them. When the plaintiff sent an invoice the defendant denied that he had concluded any contract with him. The Court ruled that there was no contract. Pollock CB said:
“Now the rule of law is clear, that if you propose to make a contract with A, then B cannot substitute himself for A without your consent and to your disadvantage, securing to himself all the benefit of the contract.”
Martin B agreed, without the qualification ‘to your disadvantage’:
“Where the facts prove that the defendant never meant to contract with A alone, B can never force a contract upon him; he has dealt with A, and a contract with no one else can be set up against him.”
Bramwell B explained his reasons in this way:
“I do not lay it down that because a contract was made in one person’s name another person cannot sue upon it, except in cases of agency. But when any one makes a contract in which the personality, so to speak, of the particular party contracted with is important, for any reason, whether because it is to write a book or paint a picture, or do any work of personal skill, or whether because there is a set-off due from that party, no one else is at liberty to step in and maintain that he is the party contracted with, that he has written the book or painted the picture, or supplied the goods; and that he is entitled to sue, although, had the party really contracted with sued, the defendant would have had the benefit of his personal skill, or of a set-off due from him.”
Channell B also seemed to consider that it was material that the defendant had a set-off:
“The plaintiff is clearly not in a situation to sustain this action, for there was no contract between himself and the defendant. The case is not one of principal and agent; it was a contract made with B, who had transactions with the defendant and owed him money, and upon which A seeks to sue.”
This early case does not demonstrate the full application of the principles that I have set out in relation to formation of contract, although the result accords with them. The focus was, however, on the intention of the defendant.
In Hardman v Booth (1863) 1 H & C 803 a fraud was perpetrated by one Edward Gandell who, it seems, carried on business in two capacities: (1) as clerk of a well known firm, Gandell & Co, of which his father was sole proprietor. There he had neither authority to contract nor was held out as having such authority. (2) He had formed a partnership with a man called Todd, which carried on business as Gandell & Todd. He purported to conclude a contract to purchase cloth from the plaintiffs, holding himself out as a member of Gandell & Co. The first instalment of the cloth was delivered to the premises of Gandell & Co and the second instalment was collected by Edward Gandell in a cart owned by Gandell & Co. Edward Gandell took the cloth to the defendant and purported to pledge it to secure a loan to Gandell & Todd. The issue was whether in these circumstances any contract was concluded between the plaintiffs and Gandell & Todd, under which the property in the cloth passed to them. The court held that no contract had been concluded.
Once again the Court attached critical importance to the intention of the vendors. Pollock C.B. summarised the position as follows at p.806:
“… in this case I think it clear that there was no contract. Mr Hawkins contended that there was a contract personally with Edward Gandell, the individual with whom the conversations took place. It is true that the words were uttered by and to him, but the plaintiffs supposed that they were dealing with Gandell & Co., the packers, to whom they sent the goods; the fact being that Edward Gandell was not a member of that firm and had no authority to act as their agent. Therefore at no period of time were there two consenting minds to the same agreement.”
Martin B emphasised that he had no doubt that the plaintiffs believed ‘that they were dealing with Gandell & Co’. Channell B remarked ‘I do not think there was a sale to Gandell and Todd ….for it is evident that the plaintiffs believed that they were dealing with Gandell & Co’. Wilde B’s judgment was to similar effect. Thus the Court proceeded on the simple premise that there could not be a contract between A and B if A did not intend to contract with B. The courts had not at this time begun to apply an objective test to the question of whether an agreement had been concluded between the parties.
In Cundy v Lindsay (1878) 3 App Cas 459 a dispute about title to goods reached the House of Lords. A rogue called Blenkarn had a room at 37 Wood Street, Cheapside. A well-known firm called W Blenkiron & Son carried on business at 123 Wood Street. Blenkarn placed written orders for goods from 37 Wood Street with the plaintiffs. He signed the orders in such a way that the signature appeared to be Blenkiron & Co. The plaintiffs, who knew of Blenkiron & Son, though not the number at which they carried on business in Wood Street, accepted the orders and despatched goods addressed to ‘Messrs Blenkiron & Co, 37 Wood Street, Cheapside.’ Blenkarn sold some of these goods to the defendants, against whom the plaintiffs claimed in conversion.
The House held that no contract had been concluded with Blenkarn and that, accordingly, the property in the goods had remained vested in the plaintiffs. Lord Cairns remarked at p.465 that the plaintiffs and Blenkarn never came into contact personally and that everything that was done was done by writing. The problem was the conclusion to be derived from the writing, as applied to the facts of the case. He held that Blenkarn had deliberately led the plaintiffs to believe that they were contracting with Blenkiron & Co, an existing firm. He asked:
“… how is it possible to imagine that in that state of things any contract could have arisen between the Respondents and Blenkarn, the dishonest man? Of him they knew nothing, and of him they never thought. With him they never intended to deal. Their minds never, even for an instant of time, rested upon him, and as between him and them there was no consensus of mind which could lead to any agreement or any contract whatever.”
Lord Hatherly said at p.469:
“…from beginning to end the Respondents believed they were dealing with Blenkiron & Co., they made out their invoices to Blenkiron & Co., they supposed they sold to Blenkiron & Co., they never sold in any way to Alfred Blenkarn; and therefore Alfred Blenkarn cannot, by so obtaining the goods, have by possibility made a good title to a purchaser, as against the owners of the goods, who had never in any shape or way parted with the property nor with anything more than the possession of it.”
Lord Penzance said at p.471:
“In the present case Alfred Blenkarn pretended that he was, and acted as if he was, Blenkiron & Co. with whom alone the vendors meant to deal. No contract was ever intended with him, and the contract which was intended failed for want of another party to it.”
Here, once again, the focus was on the intention of the offeree. In deciding that his intention was to contract with Blenkiron & Co, the House had regard to the fact that the order was apparently signed ‘Blenkiron & Co’ and to the fact that the plaintiffs knew of a firm of that name and intended to deal with that firm. Thus extrinsic evidence was admitted in addition to the wording of the order in order to ascertain the intention of the plaintiffs.
In King’s Norton Metal Company Ltd v Edridge, Merrett & Company Ltd (1897) 14 TLR 98 a rogue named Wallis had notepaper printed in the name of Hallam & Co and, pretending to be carrying on business in that name, ordered a ton of brass rivet wire from the plaintiff manufacturers. The plaintiffs delivered the wire on credit and Wallis promptly sold it to the defendants. The Court of Appeal held that a contract had been concluded between the plaintiffs and Wallis, under which property in the goods had passed. The short report records the reasoning of A.L. Smith LJ as follows:
“The question was, With whom, upon this evidence, which was all one way, did the plaintiffs contract to sell the goods? Clearly with the writer of the letters. If it could have been shown that there was a separate entity called Hallam and Co. and another entity called Wallis then the case might have come within the decision in Cundy v Lindsay. In his opinion there was a contract by the plaintiffs with the person who wrote the letters, by which the property passed to him. There was only one entity, trading it might be under an alias, and there was a contract by which the property passed to him.”
This case demonstrates that, if a person describes himself by a false name in contractual dealings, this will not, of itself, prevent the conclusion of a contract by a person who deals with him in that name. A.L. Smith LJ did not refer to ‘intention’ in his reported judgment. The result is, however, consistent with the approach to which I have referred in relation to formation of contract. The plaintiffs intended to deal with whoever was using the name of Hallam & Co. Extrinsic evidence was needed to identify who that was but, once Wallis was identified as the user of that name, the party with whom the plaintiffs had contracted was established. They could not demonstrate that their acceptance of the offer was intended for anyone other than Wallis.
Phillips v Brooks Ltd [1919] 2 KB 243 is the first case that involved a face-to-face transaction. A rogue called North entered the plaintiff’s jewellery shop. He selected some pearls and a ring and wrote out a cheque for the total price of £3,000. He stated that he was Sir George Bullough and gave an address in St James’ Square. The plaintiff, who knew of the existence of Sir George Bullough, referred to a directory and found that Sir George did, indeed, live at that address. He then permitted North to take away the ring before the cheque was cleared. Horridge J held that a contract was concluded between the plaintiff and North. At the outset of his judgment he set out his conclusion:
“I have carefully considered the evidence of the plaintiff, and have come to the conclusion that, although he believed the person to whom he was handing the ring was Sir George Bullough, he in fact contracted to sell and deliver it to the person who came into his shop, and who was not Sir George Bullough, but a man of the name of North, who obtained the sale and delivery by means of the false pretence that he was Sir George Bullough. It is quite true the plaintiff in re-examination said he had no intention of making any contract with any other person than Sir George Bullough; but I think I have myself to decide what is the proper inference to draw where a verbal contact is made and an article delivered to an individual describing himself as somebody else.”
In reaching his conclusion, Horridge J applied the reasoning in an American decision – Edmunds v Merchants’ Despatch Transportation Co (1883) 135 Mass. 283 at p.284:
“The following expressions used in the judgment of Morton CJ seem to me to fit the facts in this case: ‘The minds of the parties met and agreed upon all the terms of the sale, the thing sold, the price and time of payment, the person selling and the person buying. The fact that the seller was induced to sell by fraud of the buyer made the sale voidable, but not void. He could not have supposed that he was selling to any other person; his intention was to sell to the person present, and identified by sight and hearing; it does not defeat the sale because the buyer assumed a false name or practised any other deceit to induce the vendor to sell.'”
Phillips v Brooks well illustrates the conundrum that the application of the test of intention raises when terms are negotiated between two persons who are face to face. It arises where the two persons, A and B, are not known to each other and where A gives a name which is not his own. If B is unaware of the existence of a third person who bears that name, there will be no problem. B will clearly intend to contract with A, treating the name given by A simply as the label by which A identifies himself. Equally A will know that B intends to contract with him. The problem arises where B is aware of a third person, C, who bears the name falsely adopted by A. In that situation it is B’s intention to contract both with A and with C, for he does not distinguish between the two. No sensible answer can be given to the question: does B intend to contract with A or C? Nor can any sensible answer be given to the question: does A believe that B intends to contract with him or with C?
Horridge J. solved the conundrum by drawing an ‘inference’ that the plaintiff intended to contract with the rogue, who was present, and not with the individual whose identity the rogue had assumed.
Lake v Simmons [1927] AC 487 involved a claim by a jeweller on a policy of insurance. A fraudulent woman named Ellison induced him, in face-to-face dealings, to part with possession of two necklaces by false pretences. She pretended that she was the wife of a local gentleman called Van der Borgh, with whom she was living, and that he wanted a necklace on approval as he was contemplating giving it to her. She further pretended that a Commander Digby, who was engaged to her sister, wanted the other necklace on approval. There was no such man. Miss Ellison disposed of the necklaces. The issue was whether the underwriters were exempted from liability under an exclusion in respect of “loss by theft or dishonesty committed by … any customer in respect of goods entrusted to” the customer. The House held that they were not. Viscount Haldane, when considering whether the goods were ‘entrusted’ to Miss Ellison, applied the test of whether the face-to-face dealings between her and the jeweller were capable of giving rise to a contract. He held that they were not because of the mistake as to her identity:
“The latter was entirely deceived as to the identity of the person with whom he was transacting. It was only on the footing and in the belief that she was Mrs.Van der Borgh that he was willing to deal with her at all. In circumstances such as these, I think that there was no such consensus ad idem as, for example, Lord Cairns, in his judgment in Cundy v. Lindsay (1878) 3 App. Cas. 459, declared to be requisite for the constitution of a contract. No doubt physically the woman entered the shop and pretended to bargain in a particular capacity, but only on the footing of being a different person from what she really was. There was never any contract which could afterwards become voidable by reason of a false representation made in obtaining it, because there was no contract at all, nothing excepting the result of a trick practised on the jeweller.”
Viscount Haldane was applying a test of intention, but in a manner which differs from that adopted by Horridge J. Although he purported to distinguish rather than overrule Phillips v Brooks, I find his approach to be inconsistent with that decision. Devlin LJ, in Ingram v Little [1961] 1 QB 31, carefully analysed the speeches in Lake v Simmons, and concluded that no other member of the House adopted Viscount Haldane’s approach. I agree with that conclusion. The speeches of the other members of the House do not bear on the issue before us.
In Ingram v Little a rogue, in the course of negotiating to buy a car from three ladies, the plaintiffs, who were reluctant to take his cheque, stated that his name was P.G.M. Hutchinson and gave an address in Caterham. One of the vendors went to the local post office and ascertained from the telephone directory that there was indeed a Mr P.G.M. Hutchinson, who lived at that address. The ladies parted with possession of the car in exchange for a worthless cheque. The rogue sold the car to the defendant. The situation was similar to that in Phillips v Brooks, and all members of the Court of Appeal referred to that case. Sellers LJ doubted whether it was correctly decided. He said at p.51:
“It is not an authority to establish that where an offer or acceptance is addressed to a person (although under a mistake as to his identity) who is present in person, then it must in all circumstances be treated as if actually addressed to him.”
Earlier, at p.50, he said:
“Where two parties are negotiating together and there is no question of one or the other purporting to act as agent for another, and an agreement is reached, the normal and obvious conclusion would no doubt be that they are the contracting parties. A contrary finding would not be justified unless very clear evidence demanded it.”
Relevant factors that might displace the presumption that the parties face to face were the contracting parties were whether the party impersonated was known to the other party and the importance attached to the identity of that person. The question in each case should be solved by asking the question “how ought the promisee to have interpreted the promise?” Sellers LJ accepted the judge’s conclusion that, on the facts of the case, the rogue knew that the offer was not made to him as he was, but only to an existing person whom he represented himself to be. The offer was one which was capable of being accepted only by the honest P.G.M. Hutchinson and not by the rogue.
Pearce LJ gave a judgment to similar effect. At p.57 he said that it was clear that, though difficult, it was not impossible to rebut the prima facie presumption that the offer could be accepted by the person to whom it was physically addressed. Each case had to be decided on its own facts. He observed that:
“the nature of the proposed contract must have a strong bearing on the question of whether the intention of the offeror (as understood by his offeree) was to make his offer to some other particular identity rather than to the physical person to whom it was orally offered”.
He concluded that the judge was entitled to find that the identity of Mr Hutchinson was significant and that it was with him that the vendors intended to deal.
Devlin LJ gave a powerful dissenting judgment. He held that there were two questions: (1) was a contract properly formed? If so, (2) was it void for mistake?
As to form, he said that there could be no doubt that this had to be settled by inquiring with whom Miss Ingram intended to contract. That was a mixed question of fact and law. There was a presumption that a person intended to contract with the person to whom he was addressing the words of the contract. That presumption was not conclusive, at least where the party addressed purported to be acting as an agent. The presumption could not, however, be rebutted simply by showing that Miss Ingram would not have contracted with the rogue unless she had thought that he was Mr Hutchinson. There was nothing to rebut the presumption that she was addressing her acceptance to the rogue, in law as well as in fact. There was offer and acceptance in form. Turning to the question of mistake, Devlin LJ held that there could be no question of the mistake as to identity rendering the contract void, for the identity of the purchaser was immaterial, although his creditworthiness was not.
All three members of the court adopted the approach of identifying the intention of Miss Ingram. The difference between them was as to the manner of application of that approach where an agreement was negotiated face to face. The majority considered that a sensible answer could be given to the question ‘with whom did Miss Ingram intend to contract?’ as a question of fact. Devlin LJ considered that this question could only be answered by the application of a legal presumption, which would not be rebutted where the only reason for interest in the identity of the contracting party was concern that the contracting party should be creditworthy.
Ten years later a case of very similar facts was before the Court of Appeal. In Lewis v Averay [1972] 1 QB 198 the plaintiff advertised his car for sale in a newspaper. A rogue telephoned and asked to see it. He arrived and told the plaintiff and his fiancée that he was Richard Green and led them to believe that he was a well-known film actor of that name, who was playing the role of Robin Hood in a television series. A sale was agreed and the rogue wrote out a cheque for the purchase price. The plaintiff demurred at letting the rogue take the car before his cheque was cleared, whereupon the rogue produced a pass of admission to Pinewood Studios, with an official stamp on it, the name Richard A Green and the rogue’s photograph. On sight of this, the plaintiff permitted the rogue to take the car and the documents that related to it. The cheque bounced and the rogue sold the car to the defendant, pretending at this point that he had the plaintiff’s name. The Court of Appeal held that a valid contract had been concluded between the plaintiff and the rogue and that good title had passed to the defendant.
Giving the leading judgment, Lord Denning MR commented that it was impossible to distinguish between Phillips v Brooks and Ingram v Little on the facts. He held that Phillips v Brooks was to be preferred. He said, at p.207:
“When two parties have come to a contract – or rather what appears, on the face of it, to be a contract – the fact that one party is mistaken as to the identity of the other does not mean that there is no contract, or that the contract is a nullity and void from the beginning. It only means that the contract is voidable, that is, liable to be set aside at the instance of the mistaken person, so long as he does so before third parties have in good faith acquired rights under it.
….
In this case Mr Lewis made a contract of sale with the very man, the rogue, who came to the flat. I say that he ‘made a contract’ because in this regard we do not look into his intentions, or into his mind to know what he was thinking or into the mind of the rogue. We look to the outward appearances. On the face of the dealing, Mr Lewis made a contract under which he sold the car to the rogue, delivered the car and the logbook to him, and took a cheque in return. The contract is evidenced by the receipts which were signed. It was, of course, induced by fraud. The rogue made false representations as to his identity. But it was still a contract, though voidable for fraud. It was a contract under which this property passed to the rogue, and in due course passed from the rogue to Mr Averay, before the contract was avoided”
Phillimore LJ agreed, though in a manner which paid due respect to the doctrine of precedent. He referred to the fact that Ingram v Little was a case of ‘very special and unusual facts’ and held that there was nothing that could displace the prima facie presumption that the plaintiff was dealing with the rogue. The case was on all fours with Phillips v Brooks, which had been good law for fifty years.
Megaw LJ concurred, observing that he found it difficult to understand the basis, either in logic or in practical considerations, of the test laid down in Ingram v Little.
Lord Denning MR did not apply the approach of attempting to identify the intention of the plaintiff. He proceeded on the simple basis that, to all outward appearances, the plaintiff entered into an agreement with the rogue, with whom he was dealing. Both he and Phillimore LJ considered that the case was on all fours with Phillips v Brooks, which had been rightly decided.
The difficulty in applying a test of intention to the identification of the parties to a contract arises, so it seems to me, only where the parties conduct their dealings in some form of inter-personal contact, and where one purports to have the identity of a third party. There the innocent party will have in mind, when considering with whom he is contracting, both the person with whom he is in contact and the third party whom he imagines that person to be.
The same problem will not normally arise where the dealings are carried out exclusively in writing. The process of construction of the written instruments, making appropriate use of extrinsic evidence, will normally enable the court to reach a firm conclusion as to the person with whom a party intends to contract. This was the position in Boulton v Jones, Cundy v Lindsay and King’s Norton Metal Company v Edridge, Merrett & Company Ltd. There is a substantial body of authority that demonstrates that the identity of a party to a contract in writing falls to be determined by a process of construction of the putative contract itself. I shall refer to some examples.
In Young v Schuler (1883) 11 QBD 651 the issue was whether Schuler had signed an agreement simply under a power of attorney on behalf of one of the named parties or, additionally, on his own behalf as a guarantor. As to this, Sir William Brett MR observed at pp.654 – 655:
“But the questions whether a person has signed his name at the foot of a document, and if so, for what purpose, are questions of evidence, and any evidence on the subject which does not contradict the document is admissible…. This evidence does not contradict anything on the face of the document, and is, in my opinion, plainly admissible.” (The emphasis is mine.)
Cotton LJ gave a judgment to like effect and Bowen LJ agreed.
In Newborne v Sensolid (Great Britain) Ltd [1954] 1 QB 45 an apparent contract in writing provided for the sale of goods by a company described as Leopold Newborne (London) Ltd. The document was subscribed by the name of the company with Mr Leopold Newborne’s signature under it. At the time in question Leopold Newborne (London) Ltd did not exist, for it had not then been incorporated. Mr Newborne attempted to enforce the contract as one to which he was party. He failed on the ground that this was inconsistent with the description of the party in the contract. Lord Goddard CJ observed at p.51:
“In my opinion, unfortunate though it may be, as the company was not in existence when the contract was signed there never was a contract, and Mr Newborne cannot come forward and say: ‘Well, it was my contract.’ The fact is, he made a contract for a company which did not exist.”
Morris LJ agreed, observing that the contract purported to be a contract with the company and that it was not relevant that, as was the case, it was a matter of indifference to the purchasers whether they contracted with the company, or with Mr Newborne personally.
Where contracts were subject to the Statute of Frauds the required memorandum in writing had to identify the parties to the contract and a person could not intervene to claim that he was the true party to the contract when this was not consistent with the terms of the memorandum: Lovesy v Palmer [1916] 2 Ch 233; Basma v Weekes [1950] AC 441.
In the field of agency, an undisclosed principal will not be permitted to claim to be party to a contract if this is contrary to the terms of the contract itself. Thus the provision in the standard form B contract of the London Metal Exchange “this contract is made between ourselves and yourselves as principals, we alone being liable to you for its performance” is effective to preclude any contention that the parties named in the contract are contracting as agents for others – JH Rayner Ltd v Dept of Trade [1990] 2 AC 418 at p. 516.
In the field of shipping law a question sometimes arises as to who is the party to a contract of carriage and this is determined as a question of construction – see Homburg Houtimport BV v Agrosin Ltd [2003] UKHL 12; [2003] 2 WLR 711 and Internaut Shipping GMBH v Fercometal SARL [2003] EWCA Civ 812 for recent examples.
The effect of these authorities is that a person carrying on negotiations in writing can, by describing as one of the parties to the putative agreement an individual who is unequivocally identifiable from that description, preclude any finding that the party to the putative agreement is other than the person so described. The process of construction will lead inexorably to the conclusion that the person with whom the other party intended to contract was the person thus described.
That the identification of the parties to a written contract involves construing the contract was the basis of the decision in Hector v Lyons (1988) 58 P & CR 156. The majority of the Court of Appeal in the present case considered that this decision weighed conclusively in favour of Shogun. Hector v Lyons involved a claim for specific performance of a contract to buy a house. The appellant rejoiced in the name Martin Aloysius Handel Hector. He had a son, aged less than 18, more modestly christened Martin Aloysius Hector. The father negotiated the purchase of the house face-to-face with the Respondent, who at all times understood that she was contracting with the father. The father instructed solicitors to draw up the formal contract for exchange. For reasons not apparent he led them to understand that the purchaser was to be his son, and they described the purchaser in the contract as ‘Martin Aloysius Hector’, understanding that they were thereby identifying the son. The father signed the purchaser’s copy of the contract with a signature that differed from his normal signature. What was behind all of this is not clear to me nor was it, I suspect, to the trial judge, who found that the father gave a lot of false evidence.
The father sought to enforce the contract on the footing that he was the purchaser. The respondent argued that he was not a party to the written contract; the purchaser under that contract was the son. The trial judge found in her favour. The basis upon which he did so was that the solicitors handed over the purchaser’s part of the contract as being the document of the son and the signature that it bore purported to be that of the son.
In the Court of Appeal counsel for the appellant argued that the contract had been concluded between the appellant and the respondent, relying on the line of cases ending with Lewis v Averay. The Vice-Chancellor dismissed this argument at pp.158-9:
“In the case of a face to face sale, where the sale is over a counter or between two individuals, the law is well established that the mere fact that the vendor V is under the misapprehension as to the identity of the person in front of him does not operate so as to render the contract void for mistake, it being a mere unilateral mistake as to a quality of the purchaser; only in cases where the identity of the purchaser is of direct and important materiality in inducing the vendor to enter into the contract is a mistake of the kind capable of avoiding the contract.
With one exception those cases are entirely concerned with transactions between two individuals face to face entering into oral agreement. In my judgement the principle there enunciated has no application to a case such as the present where there is a contract wholly in writing. There the identity of the vendor and the purchaser is established by the names of the parties included in the written contract. Once those names are there in the contract, the only question for the court is to identify who they are.
In the present case the deputy judge has found as a fact that the party named in the written contract was Mr Hector junior. It follows, in my judgement, that in the absence of rectification, which has not been claimed, or Mr Cogley’s alternative argument based on agency the only person who can enforce that contract is the party to it, namely Mr Hector junior. He has never at any stage sought to do so. It is for these purposes in my judgement irrelevant whom Mrs Lyons thought she was contracting with: she is entitled to say “I entered into a contract with the person named in the contract, and nobody else.” As the learned deputy judge pointed out, if Mrs Lyons had sought to enforce the contract against Mr Hector senior, the position might have been different, in that Mr Hector senior might have estopped himself by his conduct from denying that he was the person named in the contract. But that is quite a different case.”
In concurring with the Vice-Chancellor, Woolf LJ said this:
“Parties to the contract are normally to be ascertained from the document or documents containing the contract. There can be limited circumstances where it is possible to allow oral evidence to be given in relation to a written contract, but those circumstances are recognised as being exceptional and should, in my view, be strictly confined.
…
In this case there is no dispute as to who, according to the written contract, are the parties. The son was described in the contract as one of the parties. He does exist and, insofar as there was a contract at all, it was between him and the other party identified in the contract, Mrs Pamela Doris Lyons”
Given the premise that, as a matter of construction, the purchaser described in the contract was the son, the conclusion of the Court of Appeal is readily understandable. I do, however, have difficulty in understanding the basis on which the trial judge concluded that the purchaser described in the contract was the son rather than the father. The father had carried out the negotiations, he had signed the agreement, albeit not with his customary signature, and he bore the forenames and the surname of the purchaser, as described in the contract. The trial judge’s finding does not, however, appear to have been challenged in the Court of Appeal. While the facts of this decision are not easy to follow, it supports the proposition that the identity of the parties to a contract in writing fall to be determined by a process of construction of the contract.
The result in the present case
I have had the advantage of reading in draft the opinions of my noble and learned friends who have sat with me on this appeal. Lord Hobhouse of Woodborough and Lord Walker of Gestingthorpe have concluded that, as the contract was a written document, the identity of the hirer falls to be ascertained by construing that document. Adopting that approach, the hirer was, or more accurately purported to be, Mr Patel. As he had not authorised the conclusion of the contract, it was void.
Lord Nicholls of Birkenhead and Lord Millett have adopted a different approach. They point out the illogicality of applying a special approach to face-to-face dealings. What of dealings on the telephone, or by videolink? There also it could be said that each of the parties to the dealings is seeking to make a contract with the other party to the dealings. And this can even be said when the dealings are conducted by correspondence. If A writes to B making an offer and B writes back responding to that offer, B is intending to contract with the person who made that offer. If a contract is concluded in face-to-face dealings, notwithstanding that one party is masquerading as a third party, why should the result be different when the dealings are by letter?
Lord Nicholls of Birkenhead and Lord Millett propose an elegant solution to this illogicality. Where two individuals deal with each other, by whatever medium, and agree terms of a contract, then a contract will be concluded between them, notwithstanding that one has deceived the other into thinking that he has the identity of a third party. In such a situation the contract will be voidable but not void. While they accept that this approach cannot be reconciled with Cundy v Lindsay, they conclude that Cundy v Lindsay was wrongly decided and should no longer be followed.
While I was strongly attracted to this solution, I have found myself unable to adopt it. Cundy v Lindsay exemplifies the application by English law of the same approach to identifying the parties as is applied to identifying the terms of the contract. In essence this focuses on deducing the intention of the parties from their words and conduct. Where there is some form of personal contact between individuals who are conducting negotiations, this approach gives rise to problems. In such a situation I would favour the application of a strong presumption that each intends to contract with the other, with whom he is dealing. Where, however, the dealings are exclusively conducted in writing, there is no scope or need for such a presumption. This can be illustrated by a slight adaption of the facts of the present case. Assume that the rogue had himself filled in the application form and sent it and a photocopy of Mr Patel’s driving licence to Shogun. Assume further that he had been authorised to do so by Mr Patel. There can be no doubt that a contract would have been concluded between Shogun and Mr Patel. Mr Patel would have intended to contract with Shogun; Shogun would have intended to contract with Mr Patel; and this would have been demonstrated by the application form.
Assume now that the rogue had wrongly understood that he had been requested by Mr Patel to fill in and submit the application form on his behalf, but in fact had no authority to do so. In this situation, according to established principles of the law of agency, an apparent contract would have been concluded between Shogun and Mr Patel but, being concluded without the latter’s authority, it would be a nullity. Shogun might have a claim against the rogue for breach of warranty of authority, but could not have demonstrated that a contract had been concluded with the rogue.
Turning to the true position – that the rogue knew he had no authority to conclude a contract in the name of Mr Patel, but fraudulently wished to induce Shogun to believe that they were entering into such a contract – I do not see by what legal principle this change in the mental attitude of the rogue could result in a binding contract being concluded with him.
The position is not, of course, as simple as that. Negotiations between the rogue and Shogun were not conducted exclusively by written correspondence. They were conducted with the aid of the dealer and the use of fax and telephone communications. Acceptance of the offer was conveyed by telephone via the dealer – and this might have been capable of concluding a contract, notwithstanding that Clause 1 of the standard terms provided for acceptance by signature – see the discussion in Chitty on Contracts 28th Ed. Vol 1 at paragraph 2-062. Sedley LJ considered that the dealings were analogous to face-to-face dealings and that the dealer was, in effect, the face of Shogun Finance Ltd. He considered that the face-to-face presumption should be applied.
The majority of the Court of Appeal considered that Hector v Lyons required them to determine the identity of the parties to the putative contract as a simple question of construction. On that basis they concluded that the putative hirer was Mr Patel and that, as the apparent contract was concluded without his authority, it was a nullity.
Dyson LJ considered what the result would have been had the negotiations been treated as face-to-face. He concluded that the presumption would have been displaced by the importance that Shogun attached to the identity of the person with whom they were contracting.
My Lords, I started this opinion by quoting Gresson P’s remark that the difficulty in a case such as this is a proper assessment of the facts rather than an assessment of the law. I have not found the assessment of the law easy, but nor is the application of the law to the facts. Shogun’s representatives were aware of the presence of the prospective hirer in the dealer’s showrooms in Leicester. To an extent the dealings were inter-personal through the medium of the dealer. Should one treat them as comparable to face-to-face dealings and conclude that there was a presumption that Shogun intended to contract with the man with whom they were dealing? Should one treat the written agreement as no more than peripheral to the dealings and conclude that it does not override that presumption? I have concluded that the answer to these questions is ‘no’.
Shogun had, on the evidence, set up a formal system under which contracts would be concluded in writing on a standard form. This form was designed to cater for both regulated and non-regulated hire purchase agreements. In order to be suitable for the former it had to comply with the requirements of the Consumer Credit (Agreements) Regulations 1983. Schedule 1 to these regulations, under the heading ‘Parties to the agreement’, requires the agreement to set out ‘The name and a postal address of the creditor’ and ‘The name and a postal address of the debtor’. The agreement with which this appeal is concerned was not a regulated agreement, for the purchase price of the vehicle exceeded what was, at the time, the maximum to which the relevant provisions of the Consumer Credit Act 1974 applied. I do not see, however, that the approach to the identification of the parties to the putative agreement can turn on whether or not the agreement was subject to the regulations. Shogun put in place a system for concluding contracts that required both regulated and unregulated agreements to be entered into in writing in a form which provided essential information, including the identity of the parties to the agreement.
These considerations lead me to conclude that the correct approach in the present case is to treat the agreement as one concluded in writing and to approach the identification of the parties to that agreement as turning upon its construction. The particulars given in the agreement are only capable of applying to Mr Patel. It was the intention of the rogue that they should identify Mr Patel as the hirer. The hirer was so identified by Shogun. Before deciding to enter into the agreement they checked that Mr Patel existed and that he was worthy of credit. On that basis they decided to contract with him and with no-one else. Mr Patel was the hirer under the agreement. As the agreement was concluded without his authority, it was a nullity. The rogue took no title under it and was in no position to convey any title to Mr Hudson.
For these reasons I would dismiss this appeal.
Lord Millett (Dissenting)
My Lords,
A makes an offer to B. B accepts it, believing that he is dealing with C. A knows of B’s mistake, and may even have deliberately caused it. What is the result of the transaction? Is there a contract at all? There is obviously no contract with C, who is not a party to the transaction and knows nothing of it. But is there a contract with A? And if so is it void or merely voidable?
Generations of law students have struggled with this problem. They may be forgiven for thinking that it is contrived by their tutors to test their mettle. After all, the situation seems artificial and is one which is seldom likely to arise in practice, at least in the absence of fraud. Unfortunately fraudulent impersonation is not at all uncommon today. The growth in the number of credit transactions, often entered into electronically between persons unknown to each other, has led to a surge in what has been called “theft of identity”, that is the fraudulent assumption of another’s identity by a customer in order to have the wrong account debited or to misdirect enquiries into his own creditworthiness. In the classic case A, fraudulently masquerading as C, buys goods on credit from B; B, having conducted appropriate checks to satisfy himself that C is worthy of credit and believing A to be C, lets A have possession of the goods; and A thereupon sells the goods to D, an unsuspecting purchaser, before disappearing without paying for them. Who is to bear the loss? That depends on whether D, who has paid for the goods, has obtained title to them, for if not then B can reclaim them. But D will have obtained title only if A was able to transfer title to him, and this turns on whether the transaction between A and B resulted in a voidable contract for the purchase of the goods by A (which B will have been unable to avoid in time) or no contract at all.
The problem is sometimes mentioned in the textbooks in the section which deals with the formation of contract, where the question is whether a contract has been concluded; but it is more usually dealt with in the section which is concerned with the effect of mistake and in particular “mistaken identity”, where the question is said to turn on whether A’s identity is (i)”fundamental” (in which case the contract is completely void) or (ii) “material” but not “fundamental” (in which case the contract is merely voidable). In his dissenting judgment in Ingram v Little [1961] 1 QB 31 at p. 64 Devlin LJ distinguished between the two questions and observed that it was easy to fall into error if one did not begin with the first question, whether there is sufficient correlation between offer and acceptance to bring a contract into existence. But if there is, I question whether the contract should be held to be void for mistake rather than merely voidable.
As I have said, the situation is seldom likely to arise in practice in the absence of fraud, and where the fraud is not directed to the identity of the offeror the contract is only voidable, not void, for the victim of deception ought to be able to elect to affirm the contract if he chooses to do so. It seems anomalous that a mistake which is induced by fraud should have a less vitiating effect than one which is not; and it is difficult to see why a mistake induced by fraud should make a contract altogether void if it is a mistake as to the offeror’s identity (whatever that may mean) and not if it is a mistake as to some other attribute of his such as his creditworthiness which may be equally or more material.
As Treitel observes (The Law of Contract 10th. Ed. 1999 at p. 277) it is often difficult to say precisely what mistake has been made and, even when this is clear, it is often difficult to say whether it should be classified as a mistake of identity or of attribute. As between A and B themselves, of course, it does not normally matter whether the contract is void or merely voidable; it obviously cannot be enforced by A against B’s wishes in either case. The question usually assumes importance only where an innocent third party is involved, and then it is critical. Under the law as it stands at present, his title depends on whether the fraudster obtained the goods in his own name by means of a false or forged credit reference or in the name of another by means of a genuine reference relating to that other. This is indefensible. I take the view that the law should if at all possible favour a solution which protects innocent third parties by treating the contract as voidable rather than void, whether for fraud or for mistake.
My Lords, I think that the time has come to follow the lead given by Lord Denning MR more than thirty years ago in Lewis v Averay [1972] 1 QB 198 CA. He roundly rejected the theory that if a party is mistaken as to the identity of the person with whom he is contracting there is no contract, or that if there is a contract it is null and void so that no property can pass under it: see pp. 206-7. He thought that the doctrine, derived from the writings of Pothier, should not be admitted as part of English law but should be “dead and buried”. As he observed, it gives rise to fine distinctions which do no good to the law, and it is unjust that an innocent third party, who knows nothing of what passed between the rogue and his vendor, should have his title depend on such refinements.
But it is still necessary to answer the logically anterior and more difficult question: does the transaction result in the formation of a contract between A and B? There is clearly a transaction between them, for B has let A have possession of the goods and take them away, usually with the intention that he should be free to deal with them as owner. But is the transaction contractual?
It is trite law, as Devlin LJ explained in the passage immediately following that cited above, that before a contract can come into existence there must be offer and acceptance, and these must correspond. The offer must be addressed to the offeree, either as an individual or as a member of a class or of the public. The acceptance must come from one who is so addressed and must itself be addressed to the offeror. It is not possible in law for a person to accept an offer made to someone else; or to intercept an acceptance of someone else’s offer and treat it as an acceptance of his own.
This is usually straightforward enough, at least in the absence of fraud. As my noble and learned friend Lord Phillips of Worth Matravers observes, there is normally no difference between the identity of the person to whom the offer or acceptance is directed and the person for whom it is intended. But what if, by reason of fraud, the two are not the same? What if A, posing as C, makes an offer to B which B purports to accept? B directs his acceptance to A, but intends it for C. It does not help to substitute the question: “to whom was B’s acceptance made?” This merely raises the question: “what do you mean by made?”
The outcome is said to depend on B’s intention objectively ascertained, and this is usually treated as if it were a straightforward question of fact to be determined on the evidence. In Ingram v Little (supra) Pearce LJ said at p. 61 that
“Each case must be decided on its own facts”.
This is singularly unhelpful, since it involves asking: did B intend to contract with A believing him to be C? Or with C believing him to be A? The question is meaningless. As Devlin LJ pointed out in Ingram v Little (supra) at p. 65:
“If Miss Ingram had been asked whether she intended to contract with the man in the room or with P.G.M. Hutchinson, the question could have no meaning for her, since she believed them both to be one and the same. The reasonable man of the law – if he stood in Miss Ingram’s shoes – could not give any better answer…………All that Miss Ingram or any other witness in her position can say is that she did in fact accept the offer made to her; and that, if she had not been tricked or deceived, she would not have accepted it” (emphasis added).
In this situation the Courts have distinguished between transactions entered into in writing and transactions entered into orally between parties who are in the presence of each other. In the former case B’s intention is ascertained by construing the description of the counterparty in the contract. This naturally identifies C, the person whose identity A has fraudulently assumed, and (provided that C actually exists) invariably leads to the conclusion that there is no counterparty and therefore no contract. In the latter case, the Courts have adopted a different approach. They have introduced a rebuttable presumption that, where parties deal with each other face to face, each of them intends to contract with the physical person to whom he addresses the words of contract. Unless the presumption is rebutted, this must lead to the conclusion that there is a contract with the impostor.
I do not find this satisfactory. What evidence is sufficient to rebut the presumption? As Devlin LJ stressed, it cannot be rebutted by piling up evidence that B would never have accepted the offer if he had not thought that it had been made by C. Such evidence merely shows that the deception was material; it does not establish the identity of B’s counterparty. There might perhaps be something to be said for making the presumption conclusive. This appears to have been the law at one time in the United States. In Corbin on Contracts (1960 ed.) At p. 619 it is stated that
“The Courts hold that if A appeared in person before B, impersonating C, an innocent purchaser from A gets property in the goods as against B.”
But there is surely nothing to be said for resorting to a rebuttable presumption in order to resolve a question of fact which is incapable of being determined by evidence. If there is no test by which the question can be answered on the evidence, there is none by which the Court can determine whether the presumption has been rebutted.
But the real objection to the present state of the law, in my view, is that the distinction between the face to face contract and other contracts is unrealistic. I leave aside the criticism of the face to face rule made by Corbin on Contracts (loc. cit.) at p. 620 that it is
“somewhat fanciful to hold that B intends to sell the goods to the physical body of A in front of him, although that body is indeed part of what we call ‘identity'”.
My difficulty is that I cannot see that there is any difference in principle between the two situations when it comes to identifying B’s counterparty. In both cases B’s acceptance is directed to the impostor but intended for the person whose identity he has assumed. Carleton Allen described the distinction as
He observed that text-book writers were divided on the subject, and that in the then most recently published treatise on Contracts the high but unhappily posthumous authority of Sir John Salmond leaned strongly against the doctrine.
In Ingram v Little (supra) Devlin LJ said (at p. 66) that
“the presumption that a person is intending to contract with the person to whom he is actually addressing the words of contract seems to me to be a simple and sensible one”.
I respectfully agree. But why should it be adopted only in the case of a contract entered into between persons who deal in the physical presence of each other? If the offeree’s words of acceptance are taken to be addressed to the physical person standing in his presence who made the offer, what is the position where they deal with each other by telephone? Is the disembodied voice to be equated with physical presence? Is it sufficient that the parties are in the hearing of each other? Does it make a difference if the dealing is by televisual link, so that the parties are in the hearing and sight but not the presence of each other? New means of communication make the distinction untenable.
But in truth the distinction was always unsound. If the offeree’s words of acceptance are taken to be addressed to the physical person standing in his presence who made the offer, why is the contract entered into by correspondence different? Why is the offeree’s letter of acceptance not taken to be addressed to the physical person who made the written offer which he is accepting? The offeree addresses the offeror by his assumed name in both cases. Why should this be treated as decisive in the one case and disregarded in the other? Indeed, the correlation between offer and acceptance is likely to be greater in the case of a contract entered into by correspondence, since the offeree’s letter of acceptance will either be sent to the impostor at his own address or be delivered to him personally and it will almost certainly contain internal references to his offer.
In my opinion there are only two principled solutions to the problem. The law must give preference, either to the person for whom the offer or acceptance is intended, or to the person to whom it is directed, and must do so in all cases as a matter of law. The difficulty is in deciding which solution should be adopted, for there is much to commend each of them.
The first solution, which gives preference to the person for whom the offer or acceptance is intended, possibly accords more closely to the existing authorities, which treat the face to face transaction as an exception to the general rule, and with the decision in Cundy v Lindsay (1878) 3 App. Cas. 459, the only case on the subject which has come before the House. It also accords more closely with the parties’ subjective intentions, for B intends to deal with C, especially if he has checked his creditworthiness, and not with A, of whom he has never heard; while A has no intention of being bound by contract at all. From his point of view the supposed contract is merely a pretence to enable him to get hold of goods without paying for them. He does not need a contract, for he is content with possession without title. In the days when the law distinguished between trickery and deception, he would have obtained possession by a trick rather than title by false pretences.
The strongest argument in favour of this solution, I suppose, is that it could be said to be based on the parties’ own assessment of what they mean by the counterparty’s “identity”. Ultimately this must refer to a physical person, but a physical person can only be identified by describing his or her attributes. For this purpose it is customary to refer to a person’s name and address, which are usually though not always unique to one person. But names are merely identifying labels and can be assumed without any intention to deceive. A person is free to adopt whatever name suits his fancy, and may validly contract under an alias. Even if he has assumed a false name for the sole purpose of deceiving the counterparty, there is a contract so long, at least, as there is no real person of that name: see King’s Norton Metal Co. Ltd. v Edridge, Merrett & Co. Ltd. (1897) 14 TLR 98.
But as Treitel observes (loc. cit. p.277) a person may be identified by reference to any one of his attributes. He may be identified as “the person in the room”, “the person who spoke on the telephone”, “the person who appended the illegible signature”, “the writer of the letter under reply”, or “the person who made the offer”; but he may also be identified, and sometimes more relevantly, as “the person whose creditworthiness has been checked and found to be satisfactory”. Any of these may be the means of identifying a unique person. An automated telling machine is programmed to identify a customer by a combination of a pin number and a number encrypted on the card which is inserted into the machine. In an increasingly electronic age we are accustomed to identifying ourselves by pin numbers and passwords; the need to eliminate fraud may in time cause us to identify ourselves by retinal imagery, which at least has the advantage of being a feature of the physical body. But even in the case of a credit card transaction there is an ambiguity. Is the customer to be identified as the person who produces the card? Or as the person whose card is produced? The whole point of a credit card fraud is that the goods should be supplied to the person who produces the card while the cost is debited to the account of the person whose card is produced.
Given the equivocal nature of a person’s “identity”, there is something to be said for selecting those aspects of the offeror’s identity which are material in causing the other party to accept the offer. In the present case, for example, Mr. Patel’s name address and date of birth had no intrinsic relevance in themselves. The Respondent would have entered into the transaction with anyone, whatever his name and address or date of birth, so long as it was satisfied that he was worthy of credit. Mr. Patel’s personal details were merely the information which enabled it to conduct inquiries into the credit of the person it assumed to be its customer. It makes commercial sense to treat a contract made in these circumstances as purporting to be made between the finance company and the subject of its inquiries rather than with the person who merely produced the information necessary to enable it to make them.
Nevertheless I have come to the conclusion that it is the second solution which ought to be adopted. All the considerations which I have mentioned, and which seem to favour the first solution, when properly analysed go to the mechanics of the deception and its materiality rather than to the identity of the offeror. They ought to come into play when consideration is given to the second question, whether the contract is voidable, rather than to the first, whether there is sufficient correlation between offer and acceptance (“consensus ad idem”) to bring a contract into existence. Until the fraud is exposed and it is discovered that A is not C, the existence of a contract is not in doubt. The fraud is relevant to the question whether the contract is enforceable against B rather than its existence.
I regard King’s Norton Metal Co. Ltd. v Edridge, Merrett & Co. Ltd. (supra) as worthy of more attention than it has usually been given. In that case, where the contract was entered into by correspondence, the rogue assumed a fictitious name in order to give a spurious impression of respectability. The Court held that there was a valid (though voidable) contract. The decisive feature was thought to be that there was no one of the assumed name. A.L. Smith LJ is reported at p. 99 as follows:
“The question was, With whom, upon this evidence, which was all one way, did the plaintiffs contract to sell the goods? Clearly with the writer of the letters. If it could have been shown that there was a separate entity called Hallam and Co [C] and another entity called Wallis [A] then the case might have come within the decision in Cundy v Lindsay. In his opinion there was a contract by the plaintiffs with the person who wrote the letters, by which the property passed to him. There was only one entity, trading it might be under an alias, and there was a contract by which the property passed to him” (emphasis added).
It is unclear whether it would have made a difference if, unknown to the plaintiffs, there had been an entity called Hallam and Co; or if to the knowledge of both parties there were many such entities, as in the cases where a man used to book a hotel room for himself and a girlfriend under a common but fictitious name in order to give the impression (when such things mattered) that they were married. The case is different where the impostor assumes the name and address of a real person of substance when entering into a credit transaction. In such a case his purpose is to direct inquiries to that person’s credit rather than his own. A better explanation of King’s Norton Metal Co. Ltd. v Edridge, Merrett & Co. Ltd. is that the rogue merely assumed a false name and did not go further and assume another person’s identity. But the distinction is a fine one which it may not always be possible to draw, and in any case depends on the nature and purpose of the deception and is accordingly relevant to its effect on the mind of the offeree and not to the correlation between offer and acceptance.
The typical fraudulent credit card transaction is also illuminating. There is clearly a transaction with the impostor who produces the card and who receives cash or goods (say a cinema ticket) in exchange. If the transaction is contractual in nature (as in the case of the cinema ticket) why should the transaction be thought to be with one person and the contract with another? There is only one transaction whether the party who parts with the goods debits the right account or is deceived into debiting the wrong one. Where cash is extracted from an ATM the fraud is possible because the machine is programmed to supply the cash to the person who produces the card and to debit the account of the person whose card is produced. In the same way the staff who handled the transaction in the present case on behalf of the Respondent were instructed (programmed) to obtain the customer’s personal details, run credit checks on the person whose details were produced, and authorise the dealer to deliver possession of the vehicle to the person who produced them.
It is noticeable that, when recounting the facts objectively, judges often find themselves obliged to describe C as having accepted A’s offer. I have already cited such passages from Ingram v Little (supra) and King’s Norton Metal Co. Ltd. v Edridge, Merrett & Co. Ltd. (supra). In the former case, where the parties dealt with each other face to face, Devlin LJ has C say
“that she did in fact accept the offer made to her; and that, if she had not been tricked or deceived, she would not have accepted it”.
In the latter, where the contract was entered into by correspondence, A.L. Smith LJ said that the offeree “clearly” contracted with the writer of the letters which contained the offer, that is with A.
In my opinion, once one accepts that there are two questions involved: (i) did a contract come into existence at all? and (ii) if so was the contract vitiated by fraud or mistake? there is only one principled conclusion. Whatever the medium of communication, a contract comes into existence if, on an objective appraisal of the facts, there is sufficient correlation between offer and acceptance to make it possible to say that the impostor’s offer has been accepted by the person to whom it was addressed. While a person cannot intercept and accept an offer made to some one else, he should normally be treated as intending to contract with the person with whom he is dealing. Provided that the offer is made to him, then whether his acceptance of the offer is obtained by deception or mistake, and whether his mistake is as to the identity of the offeror or some material attribute of his, the transaction should result in a contract, albeit one which is voidable.
This rule is easy to apply and accords with principle by distinguishing between the formation of a contract as a question of fact to be determined objectively and the consequences of mistake or fraud which depend on its effect on the mind of the person affected. It avoids undesirable refinements and gives a measure of protection to innocent third parties. Of course, someone has to bear the loss where there is fraud, but it is surely fairer that the party who was actually swindled and who had an opportunity to uncover the fraud should bear the loss rather than a party who entered the picture only after the swindle had been carried out and who had none. In the present case, the Respondent could easily have exposed the fraud by writing to Mr. Patel, whose address it had been given, and asking him to confirm his intention to proceed with the proposed transaction. If it had been one for which statute required a cooling off period, it no doubt it would have done.
In the Court of Appeal both Sedley LJ (who dissented) and Brooke LJ expressed disquiet at “the sorry condition” of the law. In the former’s view, with which I agree, the decision in Cundy v Lindsay stands in the way of a coherent development of this branch of the law. We have the opportunity to restate the law, and cannot shirk the duty of putting it on a basis which is both just and principled, even if it means deciding that we should no longer follow a previous decision of the House.
We cannot leave the law as it is. It is neither fair nor principled, and not all the authorities from which it is derived can be reconciled; some, at least, must be overruled if it is to be extricated from the present quagmire. If the law is to be rationalised and placed on a proper footing, the formulation which I have proposed has the merit of according with the recommendations made in the 12th Report of the Law Reform Committee “Transfer of Title to Chattels (1966 Cmnd. 2958) and in Anson’s Law of Contract (28th. Ed.) at p. 332. It would also bring English law into line with the law both in the United States and in Germany. The law of the United States has not stood still. Section 2-403 of the Uniform Commercial Code (14th. Ed. 1995) provides by sub-section (1)
” … A person with voidable title has power to transfer a good title to a good faith purchaser for value. When goods have been delivered under a transaction of purchase the purchaser has such power even though
(a) the transferor was deceived as to the identity of the purchaser…”
Any restriction of the rule to face to face transactions has disappeared. In the Official Comment on the section, reference is made to “the long-standing policy of civil protection of buyers from persons guilty of such trick or fraud.” This seems to me to be a policy which accords with good sense and justice and one which we ought to adopt for ourselves. I agree with the view of Professor Atiyah (An Introduction to the Law of Contract (1995) at p.86) that
“…a person who hands goods over to a stranger in return for a cheque is obviously taking a major risk, and it does not seem fair that he should be able to shift the burden of this risk on to the innocent third party.”
Under German law, too, the innocent third party obtains a good title, though this is a consequence of the law of property rather than the law of contract. Article 932 of the German Civil Code provides that a purchaser acting in good faith acquires title where he obtains possession from a seller who has no title. The purchaser is not in good faith if he knew, or by reason of gross negligence did not know, that the goods did not belong to the seller. Thus, under German law, whether or not A obtained title from B, he is able to pass a good title to D.
German law reaches this conclusion by admitting a far wider exception to the nemo dat quod non habet rule than we accept, and this enables it to dispense with the need to decide the contractual effect of mistaken identity (and the meaning of “identity” in this context) or to conduct a fruitless enquiry into the identity of the intended counterparty. Our inability to admit such an exception compels us to adopt a different analysis, but it would be unfortunate if our conclusion proved to be different. Quite apart from anything else, it would make the contemplated harmonisation of the general principles of European contract law very difficult to achieve.
Where does this leave the authorities? Most of those which are concerned with face to face transactions can stand with the exception of the decision of the majority of the Court of Appeal in Ingram v Little (supra), which is inconsistent with Lewis v Averay (supra) and should be overruled. I would confirm the decision in Phillips v Brooks [1919] 2 KB 243, where Horridge J held that the shopkeeper had
“contracted to sell and deliver [the ring] to the person who came into his shop…………who obtained the sale and delivery by means of the false pretence that he was Sir George Bullough………..[The shopkeeper’s] intention was to sell to the person present, and identified by sight and hearing.”
In my opinion the Judge’s reasoning cannot be faulted. He distinguished between the two questions, and treated the identity of the purchaser as a question of fact to be determined objectively and without regard to the evidence that the shopkeeper had no intention of selling the goods to anyone other than Sir George Bullough.
In Gordon v Street [1899] 2 QB 641 and Said v Butt [1920] 3 KB 497 the dispute was between A and B; no third party was involved. In each case it was sufficient to hold that any contract which resulted was voidable. Said v Butt is a celebrated case which merits further attention. The plaintiff wished to attend the first night of a play. He had had serious differences of opinion with the management of the theatre, and he knew that an application for a ticket in his own name would be refused. He therefore arranged for a friend to go to the theatre and buy a ticket for him without disclosing the fact. When he turned up for the performance he was refused admission. His claim for damages was dismissed. The evidence showed that a first night is a special event with characteristics of its own, and that first night tickets are only given or sold to persons whom the management selects and wishes to favour. McCardie J found that the purchaser’s identity was a material element in the formation of the contract and that the failure to disclose the fact that the ticket was bought on his behalf prevented the plaintiff from asserting that he was the undisclosed principal. In my opinion that conclusion was inescapable. The case has usually been taken to be an example of a contract which is void for mistake. I do not think that it is. There can be little doubt that the friend who bought the ticket could have made use of it to gain admission himself. In my opinion the case is an example of the rule that an undisclosed principal cannot intervene where the nature of the contract shows that the contract was intended to be with the agent personally: see Collins v Associated Greyhound Racecourses Ltd. [1930] 1 Ch. 1 CA. The evidence showed that tickets for a first night are not transferable, from which it follows that they are incapable of being bought for an undisclosed principal; so that even on its own terms the contract could not be enforced by the plaintiff. Admittedly McCardie J.’s judgment did not proceed on this basis; but he did not hold there to be no contract at all even with the person who bought the ticket.
Hardman v Booth (1863) 1 H & C 803 is an important case because it formed the foundation of the reasoning of the House in Cundy v Lindsay (supra). It has been taken to be an example of the same category of case and inconsistent with Phillips v Brooks (supra): see (1941) 57 LQR 228 at 241. But I do not think it is either. B called at the premises of C & Co., where he met A, whom he was fraudulently led to believe to be a partner in the firm of C & Co. A ordered goods from B and, after taking delivery, pledged them to D before becoming bankrupt. B sued D in trover. The action succeeded. The Court of Exchequer held that there was no sale to A because B did not deal with him personally. In my opinion the situation was quite different from that in the other cases under discussion. B dealt with A face to face, but he did not deal with him as principal. Even objectively he did not contract with him at all. He was not mistaken as to A’s identity, but as to his authority. But there was certainly a contract of some sort between A and B, for A would be liable to B for breach of warranty of authority. Whether the case was rightly decided depends on whether there is an analogy with the case where a person contracts as agent for a non-existent principal. There the agent is held to have contracted on his own account and to be personally liable on the contract. I would leave the point open, but it makes little sense to make D’s title depend on whether A falsely held himself out to be acting as agent for a principal who did not exist or for a principal who did exist but had not authorised him to contract on his behalf.
The principal obstacle which has prevented the Courts from rationalising this branch of the law has been Cundy v Lindsay (supra), a decision of this House. It was concerned with a contract entered into by correspondence. A rogue named Blenkarn, posing as Blenkiron & Co, ordered goods by letter from the Respondents. They replied to the letter, accepted the order and despatched the goods to the name and address they had been given. Blenkarn then sold them to the defendants. The House held that the defendants obtained no title. The case is treated in the textbooks as an example of a contract which is void for unilateral mistake, but this was not the basis of the decision. The word “mistake” appears only once in the speeches, and then only in reference to the address of the premises to which the Respondents despatched the goods. Lord Cairns LC (at p. 456) observed that it was not a case in which a contract could be impeached for fraud, but where a contract never came into existence. There was no contract between the Respondents and the cheat Blenkarn because
“of him they knew nothing, and of him they never thought. With him they never intended to deal. Their minds never, even for an instant of time, rested upon him, and as between him and them there was no consensus of minds which could lead to any agreement or any contract whatever. As between him and them there was merely the one side to a contract, where, in order to produce a contract, two sides would be required”
Per Lord Cairns LC at p. 465-6. Lord Hatherley spoke to the same effect at p. 467:
…if there could be said to have been any sale at all, it failed for want of a purchaser.”
Per Lord Hatherley at p. 467. It was not a sale to Blenkarn
“with whom the Respondents had not, and with whom they did not wish to have, any dealings whatever.”
As an authority on the formation of contract the decision is, with respect, unconvincing. That the Respondents did not wish or intend to have any dealings with Blenkarn is beyond dispute; but it is far from obvious that they did not actually have such a dealing even though it was only as a result of the deception practised on them. Lord Hatherley and Lord Penzance felt unable to distinguish the case from Hardman v Booth, although in my view the two cases are not comparable. Lord Cairns dwelt on the plaintiffs’ subjective state of mind, which was of course affected by the fraud, and gave no attention to the question whether, approaching the case objectively, the plaintiffs had accepted Blenkarn’s offer. Lord Penzance (at pp. 471-2) initiated the unfortunate distinction between cases of persons dealing in the presence of each other and other cases, without explaining why this was material, let alone decisive.
The plaintiffs, indeed, “knew nothing” of the individual named “Blenkarn” and they addressed their letter of acceptance to “Blenkiron & Co”. but that was because they had been deceived into believing that the offer came from Blenkiron & Co. Throughout the speeches in this House it was assumed that the plaintiffs’ letter of acceptance was directed and sent, as the goods were later directed and sent, to the intended recipient (Blenkiron & Co.) but at the wrong address. If the facts of that case are viewed objectively, however, with a view to ascertaining whether there was the necessary correlation between offer and acceptance and without reference to the deception, the matter wears a very different aspect. The order was placed by Blenkarn (posing as Blenkiron & Co.) writing from his own address (which was not the address of Blenkiron & Co.) and was duly accepted by the plaintiffs in the belief that the order came from Blenkiron & Co. They replied to Blenkarn (in his assumed name as Blenkiron & Co.) at the address he had given (being his own address and not that of Blenkiron & Co.) by a letter which referred to and accepted his order; and in due course they fulfilled it.
In my view the proper conclusion on these facts is that the plaintiffs contracted with Blenkarn in the mistaken belief, induced by his fraud, that they were dealing with Blenkiron & Co., and that the resulting contract was voidable for fraud. If the plaintiffs’ subjective state of mind, induced by the fraud, is put on one side, there is no justification for the question-begging assumption that the plaintiffs’ letter of acceptance was directed to Blenkiron & Co. and that it was the name which was right and the address which was wrong. Nor is there any justification for the suggestion that the signature was a forgery. Blenkarn, who signed the letter, did not claim that it was someone else’s signature; he acknowledged and asserted that it was his own. Even those who consider that the case was rightly decided concede that the rogue could have been sued for the price of the goods (see Treitel (loc cit p. 284). But that presupposes that there was sufficient correlation between offer and acceptance to bring a contract into existence, albeit one which was void (or voidable) at the instance of the party deceived. Yet this was the very proposition which the House rejected.
The case can usefully be contrasted with Boulton v Jones (1857) 2 H.& N. 564, which falls on the other side of the line and was in my opinion rightly decided. The defendant sent to the shop of one Brocklehurst a written order for goods. The order was addressed to Brocklehurst by name. Unknown to the defendant, Brocklehurst had earlier that day sold and transferred his business to Boulton. Boulton fulfilled the order and delivered the goods to the defendant without notifying him that he had taken over the business. The defendant accepted the goods and consumed them in the belief that they had been supplied by Brocklehurst. When he received Boulton’s invoice he refused to pay it, claiming that he had intended to deal with Brocklehurst personally, since he had dealt with him previously and had a set-off on which he had intended to rely. The Court of Exchequer held that the defendant was not liable for the price.
There was, of course, a preliminary question of construction, whether the defendant’s order could be interpreted as addressed, not to Brocklehurst personally, but to the proprietor of the shop for the time being. The Court held that it could not. This point need not detain us further. Three of the four Judges decided the case on the straightforward ground that the offer was addressed to Brocklehurst and could not be accepted by Boulton. (I put on one side the judgment of Bramwell B. which, though the most frequently cited, was condemned by Professor Goodhart (op. cit. at p 233) as the least satisfactory).
On this analysis, Boulton made a counter-offer which the defendant accepted in the mistaken belief that it was made by Brocklehurst. The mistake was material because of the existence of a set-off against Brocklehurst but not against Boulton; so that the contract which resulted from the counter-offer was voidable. The question then arose whether the defendant, who had received and consumed the goods, was liable on a quantum valebat. It was held that he was not, since he consumed them in the belief that he could discharge his liability to pay by set-off. We would classify the case today as an example of a claim in unjust enrichment being defeated by a change of position defence.
The contractual claim arising from the defendant’s order failed because, objectively speaking, there was no correlation between offer and acceptance. This is the same ground as that which was later to form the basis of the decision in Cundy v Lindsay, but the facts of the two cases are very different. In Boulton v Jones the goods were ordered from Brocklehurst but supplied and invoiced by Boulton; the acceptance did not correspond with the offer. In Cundy v Lindsay the goods were ordered by Blenkarn posing as Blenkiron & Co. and supplied and invoiced to him in that name. Outwardly the acceptance did correspond with the offer. Objectively speaking there was consensus ad idem, though this was vitiated by the fraud which produced it.
The last case to which I need to refer is Hector v Lyons (1989) 58 P & CR 156. This was a very curious case. It concerned a contract for the sale and purchase of land. Mr. Hector Senior negotiated with Mrs. Lyons for the purchase of her property. They negotiated personally, at first over the telephone and then face to face. Throughout the negotiations, for a reason which was never explained, Mr. Hector acted in the name of his son, Mr. Hector Junior, who was under age. It is not clear whether the parties entered into an agreement subject to contract, but if they did it would have been signed by Mr. Hector Senior in his son’s name. He instructed solicitors to act for him, again in his son’s name, and in due course contracts were signed and exchanged, the two parts being in identical terms and giving Mr. Hector Junior’s name as the name of the purchaser. Mr. Hector Senior signed his part of the contract in his son’s name. Mrs. Lyons refused to complete and Mr. Hector Senior brought an action for specific performance. He did so in his own name. Sir Nicolas Browne-Wilkinson V.-C. dismissed the appeal.
It has been suggested that the action rightly failed because there was no identity between the name of the plaintiff in the writ and that in the contract which he was claiming to enforce. But this was not the ground of decision and is without substance. The objection could readily be met if necessary by amending the writ to add after the name of the plaintiff the words “also known as…..”.
It might have been an understandable ground for refusing equitable relief that it was not at all clear to the Court what was going on, particularly as Mr. Hector Senior’s testimony was thoroughly unsatisfactory. But that was not the basis of the decision either. The Vice-Chancellor held that there was no contract with Mr Hector Senior. The identity of the parties to a written contract was established by the names stated in the contract. The only question for the Court was to identify who they were, and this was a question of fact.
So far I respectfully agree with the Vice-Chancellor. Where I part company with him is at the next step, when he affirmed the deputy judge’s finding of fact that the purchaser was Mr. Hector Junior. That the name of the purchaser stated in the contract was the name of Mr. Hector Junior and not that of Mr. Hector Senior was established as a fact. But it does not at all follow that the party who contracted as purchaser in that name was Mr. Hector Junior. The evidence plainly showed that it was not. He knew nothing of the transaction, and the vendor did not deal or intend to deal with him. To adapt Lord Cairns’ words (but in the converse case, for we are now talking of C, not of A) “of him she knew nothing, and of him she never thought. With him she never intended to deal.”
In my opinion the evidence demonstrated beyond doubt that the purchaser was in fact Mr. Hector Senior, who for some reason of his own had adopted his son’s name for the purpose of entering into the contract. He was identified as the person who in fact negotiated the purchase with the vendor and agreed to pay the purchase price, who signed any agreement subject to contract which there may have been, who instructed solicitors to act on his behalf as purchaser, and who signed the purchaser’s part of the contract. The vendor was neither deceived nor mistaken. She not only intended to deal but actually dealt with Mr. Hector Senior. The only fact in respect of which she was mistaken was that the name in which he contracted was not his real name but that of his son, and that was not material.
My Lords, the identification of the parties to a written instrument is, as the Vice-Chancellor held, only partly a question of construction. That is the first step in the process, and it will often be enough. It would have been enough in Boulton v Jones if the Court had accepted the submission that the order was addressed to the proprietor of the shop for the time being and not to Mr. Brocklehurst personally. But once it is established that the person whose name and other personal details are stated in the contract and the person who stated them and signed the contract are not the same, the question immediately arises: which of them should be treated as the counterparty? Do the name and other details included in the contract refer to the person to whom they belong or to the impostor who included them in order to identify himself? This is not simply a question of construction. It is partly a question of fact and partly a question of law. To say, as my noble and learned friend Lord Hobhouse of Woodborough does, that it is a question of construction which admits of only one answer, with respect simply begs the question.
How should the question be answered in the present case? The case is not unlike Hector v Lyons, with the important difference that in the present case the deception was material and induced the making of the contract. If there was a contract with the rogue, it was voidable for fraud.
But was there such a contact at all? The contact came into being when the Respondent executed its part of the agreement. The two parts corresponded in every material particular. They made it clear that the hirer was the person named on the front of the document and who had signed the document. This appeared to be a Mr. Durlabh Patel, with an address in Leicester, whose personal details were given. But in fact it was not Mr. Durlabh Patel at all. He knew nothing of the transaction and his driving licence had been stolen. The person who identified himself as Mr. Durlabh Patel, provided Mr. Durlabh Patel’s personal details, and signed the document in Mr. Durlabh Patel’s name was not Mr. Durlabh Patel but an impostor.
The object of the deception was to misdirect the Respondent’s credit enquiries. In this it succeeded. Having satisfied itself that Mr. Durlabh Patel, whom it believed to be its customer, was worthy of credit, it accepted the offer which the impostor had made, signed its part of the agreement, and authorised the dealer to deliver possession of the car to his customer as hirer under the agreement.
But who was his customer? It was not Mr. Durlabh Patel. In my opinion it was plainly the impostor. Any other conclusion would mean that the dealer parted with the vehicle to the impostor without authority and would, presumably, be liable in conversion if the vehicle proved to be irrecoverable. This is far removed from reality. The Respondent and the dealer both believed that the customer who was hiring the car and Mr. Durlabh Patel were one and the same; but the Respondent did not make that a condition of the dealer’s authority to part with the car. From first to last it believed that the impostor who attended the dealer’s showroom, gave his name as Mr. Durlabh Patel, and signed the agreement in that name, was indeed Mr. Durlabh Patel; in that belief it entered into a hiring agreement and authorised the dealer to deliver possession of the car to the customer who had so identified himself. In my opinion, the Respondent not only took a credit risk, but also took the risk that the customer who was hiring the car was not Mr. Durlabh Patel and that its credit enquiries had been fraudulently misdirected. I would hold that there was a hiring, and the impostor was the hirer.
This conclusion involves a departure from Cundy v Lindsay, a decision of this House which has stood for more than 120 years. But its reasoning is unsound. It is vitiated by its subjective approach to the formation of contract and the necessary correlation between offer and acceptance; which may be why textbook writers treat it as an example of unilateral mistake even though this was not the basis on which it was decided. For the same reason it cannot be regarded as authoritative on the question whether a contract otherwise properly entered into is void for mistake rather than voidable. It has had an unfortunate influence on the development of the law, leading to an unprincipled distinction between face to face transactions and others and the indefensible conclusion that an innocent purchaser’s position depends on the nature of the mistake of a third party or the precise mechanics of the fraud which had been perpetrated on him. In my view it should now be discarded and the law put on a simpler and more principled and defensible basis.
In my opinion only the decision in Cundy v Lindsay stands in the way of a rational and coherent restatement of the law. My noble and learned friend Lord Phillips of Worth Matravers has expressed the view that the conclusion to which Lord Nicholls and I have come conflicts not only with that case but with the approach in almost all the numerous cases which he has cited. If they had preceded Cundy v Lindsay, that would be a strong reason for not adopting it. But they were merely following a decision of this House by which they were bound. Far from applying it generally, they attempted to distinguish it by carving out an unprincipled exception from it which Lord Nicholls has shown cannot be supported. While departing from Cundy v Lindsay would make obsolete the reasoning in those cases, dictated as it was by that decision, it would undermine the actual decision in very few cases. There is no long line of authority to be overruled. Indeed, only two cases need to be overruled; and neither of them can be supported even on the view that Cundy v Lindsay was rightly decided.
In my opinion Cundy v Lindsay should no longer be followed and Ingram v Little and Hector v Lyons should be overruled. I would allow the appeal.