Kleinwort Benson Ltd v Lincoln City Council
[1999] 2 AC 349
Independent editorial summary — not the official judgment. Read the full judgment via the source link.
Ratio Decidendi
Money paid under a mistake of law is recoverable in restitution on the same basis as money paid under a mistake of fact; a later judicial decision that changes the settled understanding of the law can found a claim that earlier payments made in reliance on the old understanding were made under such a mistake.
Facts
Kleinwort Benson Ltd, a bank that had been an early participant in the market for interest rate swaps, entered into interest rate swap transactions with four local authorities: Birmingham City Council, Southwark London Borough Council, Kensington and Chelsea London Borough Council and Lincoln City Council. Following the House of Lords' decision in Hazell v Hammersmith and Fulham LBC that such swap transactions were beyond a local authority's statutory powers and therefore void, Kleinwort Benson brought four consolidated claims to recover the net payments it had made under the void swaps, totalling £811,208.90.
Judgment Summary
By a majority, the House of Lords (Lord Goff, Lord Lloyd and others; Lord Browne-Wilkinson dissenting on this point) held that money paid under a settled understanding of the law which is later shown by a subsequent judicial decision to have been mistaken can be recovered in restitution, on the same footing as money paid under a mistake of fact. Lord Goff, giving the leading speech, concluded that the old common law rule barring recovery for mistakes of law should no longer be maintained as part of English law, notwithstanding that the Law Commission had recommended leaving reform to legislation. Lord Browne-Wilkinson dissented, taking the view that retrospective application of Hazell could not create a mistake where none existed at the time each payment was made.
Key Quotes
I can see no good reason for the mistake of law rule to be maintained in our law.
Editorial summary of reasoning attributed to Lord Goff(not a verbatim quotation)
Subsequent Treatment
Abolished the mistake of law rule; fundamental to the modern law of unjust enrichment.
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