2.1 Although the rule is now firmly embedded, it is important to note the circumstances in which it originated. It developed from the application of the maxim ignorantia juris non excusat (literally, “ignorance of the law does not excuse”) to claims for the recovery of money paid under mistake. Bilbie v Lumley which established the rule in 1802 was a surprising decision in the light of the development of the earlier law.
I. THE LAW PRIOR TO BILBIE v LUMLEY
2.2 To set Bilbie v Lumley in context, it is necessary to describe the prior development of claims for moneys paid by mistake or in circumstances which made it unjust for the recipient to retain the money. Since Slade’s Case 1 in 1602 a form of action called indebitatus assumpsit had become the most convenient common law procedure to recover moneys paid. This form of action was based on an implied promise to pay in circumstances where no express contractual basis to a claim existed.2 One species of indebitatus action or count became the action for “money had and received”, which includes a wide range of claims to recover money previously paid by the plaintiff to the defendant which, in justice, the defendant ought to repay.
2.3 Although the indebitatus assumpsit action was used as early as 1657 to recover money paid by mistake, there is very little early authority on the scope of mistake.3 The general approach taken in the early cases is illustrated in Attorney-General v Perry (1733) where the court said:
Whenever a man receives money belonging to another without any reason, authority or consideration, an action lies against the receiver as for money received to the other’s use; and this, as well where the money is received through mistake under colour, or upon an apprehension, though a mistaken apprehension of having good authority to receive it, as where it is received by imposition, fraud or deceit in the receiver.4
Prior to Lowry v Bourdieu (1780) (see below para 2.6), no distinction was suggested between mistake of fact or of law, when mistake was the basis of the claim for recovery. In Farmer v Arundel (1772), De Grey C J said:
When money is paid by one man to another on a mistake of fact or of law, or by deceit, this action [money had and received] will certainly lie.5
2.4 In the latter half of the eighteenth century, the Court of King’s Bench under Lord Mansfield delivered a number of decisions which relied upon a broad notion of what was described as “equity”6 as a basis for granting recovery of moneys paid or benefits conferred, whether by a mistake, or pursuant to an illegal contract, or under duress or fraud. The court took a liberal attitude toward the criteria for recovery of money claimed in actions brought in indebitatus assumpsit, and would allow recovery whenever it was against conscience for the defendant to retain it. Summarising the nature of the action in Moses v Macferlan, Lord Mansfield noted that:
the gist of this kind of action is, that the defendant, upon the circumstances of the case, is obliged by the ties of natural justice and equity to refund the money.7
In Sadler v Evans, he commented that the action for money had and received was:
a liberal action, founded upon large principles of equity, where the defendant can not conscientiously hold the money. The defence is any equity that will rebut the action.8
2.5 Lord Mansfield’s approach to payments made by mistake was to regard them as instances of a general principle whereby unconscientious receipt of money gave rise to a claim for its repayment.9 The cases in this period did not distinguish between mistake of fact or mistake of; law, but relied upon the primary criterion of whether, in good conscience, the defendant could retain the money. This was consistent with the attempt by Lord Mansfield to use the action of indebitatus assumpsit “to enforce moral duties, and many of those equitable rights which, in pursuance of his desire to effect some kind of fusion between law and equity, he was not content to leave to the court of Chancery”.10 These principles were applied throughout the latter half of the eighteenth century.
2.6 However in Lowry v Bourdieu11 the seeds of change were sown in an obiter dictum of Buller J. The case concerned an insurance policy held to be illegal as a “gaming policy”. The plaintiffs were the insured who brought an action for return of the premium paid on the ground that the contract of insurance was void, since they had no insurable interest. The court held that, since the money was paid on an illegal consideration, it could not be recovered. The reasons which led the judges who were in the majority to their conclusion are a little obscure. Lord Mansfield proceeded on the basis that the contract was illegal and in the circumstances of the particular case the general rule that the loss lies where it falls in an illegal contract would prevail. It seems that Ashhurst J was of the same view. However Buller J proceeded along a different route and said in the course of his judgment:
There was no fraud on the part of the underwriters, nor any mistake in matter of fact. If the law was mistaken, the rule applies, that ignorantia juris non excusat. This was a mere gaming policy, without interest.12
It was this statement that was taken up in Bilbie v Lumley.
II. BILBIE v LUMLEY
2.7 In Bilbie v Lumley,13 a material fact had been withheld from an insurance underwriter, but was later disclosed before the claim was paid. The underwriter failed to realise that the claim could have been repudiated because of this non-disclosure until after the claim was paid. An action was then brought in indebitatus assumpsit at common law to recover the moneys paid. According to the report, Lord Elienborough prevented any discussion of the effect of the underwriter’s mistake by asking counsel whether he knew of any case where money paid voluntarily with full knowledge of the facts had been recovered on the ground of mistake of law, to which counsel replied that he did not. His Lordship held against the underwriter and denied recovery of the moneys paid, stating:
Every man must be taken to be cognizant of the law; otherwise there is no saying to what extent the excuse of ignorance might not be carried. it would be urged in almost every case.14
He cited Buller J’s quotation about ignorantia juris non excusat in Lowry v Bourdieu (para 2.6), but he failed to mention that the other judges, notably Lord Mansfield, based their judgment in that case on a different ground. He thus failed to note the importance of the illegality of the contract in Lowry v Bourdieu.
2.8 Lord Ellenborough made it clear in Bilbie v Lumley that, in his view, if he allowed the recovery of money paid on the basis of a mistake of law, then the floodgates of litigation would open to admit an unacceptable number of restitutionary claims.15 The policy underlying his Lordship’s view appears to be that the occurrence of instances of unjust enrichment as a result of the operation of the rule was a lesser evil than appearing to condone ignorance of the law as a defence to claims for repayment of moneys paid by mistake.
III. THE CONSOLIDATION OF THE RULE
2.9 Confined to its facts, there is nothing about Bilbie v Lumley that is particularly startling. The defendant’s claim under an insurance policy had been paid out by the plaintiff after the defendant had submitted all relevant material to the insurer, including the letter which was later relied upon by the plaintiff as disclosing a material fact which would have entitled the plaintiff to avoid the policy. Goff and Jones have suggested that:
the rationale of the rule in Bilbie v Lumley has often been misunderstood. Insofar as it lays down that a payment made in settlement of an honest claim is irrecoverable, it embodies a sound rule of policy.16
2.10 However Bilbie v Lumley soon became authority for a broader proposition. Despite a strong attack in Chambre J’s dissenting judgment in Brisbane v Dacres (1813), where he said that it was a most dangerous doctrine, that a man getting possession of money to any extent, in consequence of another party’s ignorance of the law, cannot be called upon to repay it ... 17
a general rule denying recovery of moneys paid under mistake of law took firm hold by the early nineteenth century.18 At this time there was a fundamental swing away from the views of Lord Mansfield (that moral and equitable obligations overrode other legal doctrines and should determine the outcome of matters involving unjust enrichment), towards an emergent contract law based upon the notions of privity and the sanctity of contract. Dickson J (as he then was) of the Canadian Supreme Court in Hydro Electric Commission of Township of Nepean v Ontario Hydro has noted this historical coincidence as follows:
The adoption of the rule at the beginning of the nineteenth century occurred at a time when the spirit of the law was becoming opposed ‘to such idealistic formulations as “aequum et bonuml” ... This change in spirit was nourished by the prevailing philosophical, political and economic ideologies of the nineteenth century, the premise being that partners to a contract are enlightened individuals exercising discrimination and free will and Courts should not disturb their contractual relations. Stability... of contractual relations then became the justification for judicial non-interference.19
2.11 In consequence of the establishment of the rule came the series of cases which sought to distinguish between mistakes of fact (where recovery was usually available) and mistakes of law (where it was not). The difficulty of this distinction and the anomalies which it has spawned will be discussed further below (paras 3.2-3.6).
2.12 It is possible to distinguish Bilbie v Lumley on its facts as an example of the irrecoverability of payments made in settlement of an honest claim.20 However it quickly became authority for a wider proposition, being the general rule barring recovery of moneys paid under a mistake of law. Whilst a miscellany of exceptions has ameliorated its impact, the fact remains that a general rule precluding recovery of moneys paid under mistake of law is a part of the common law in Australia. It is probably not beyond dislodgement by the High Court but otherwise seems firmly fixed. Croom-Johnson J may have exaggerated slightly in saying, in 1943, that the proposition that “a voluntary payment made under a mistake of law cannot be recovered is, I should have thought, beyond argument at this period in our legal history”.21 However the basic rule is attested to by authoritative dicta in the High Court,22 Privy Council23 and English Court of Appeal,24 and illustrated by various cases discussed in the next chapter. It has been applied comparatively recently by the New South Wales Court of Appeal25 and stated, in 1982, by the Full Federal Court to be “firmly entrenched”.26 The major textbooks on contract and restitution accept the general rule.27 Recently the rule was discussed extensively by the Supreme Court of Canada which, by majority, affirmed its continued existence.28
FOOTNOTES
1. Slade’s Case (1602) 4 Co Rep 92b (76 ER 1074).
2. See the discussion of the growth of the indebitatus assumption action and the rivalry between courts of common law and equity in Lord Goff of Chieveley and G Jones The Law of Restitution 3rd edition 1986 at 5-12. The historical development of indebitatus assumsit is discussed by McHugh JA in Paul v Pavey & Matthews Pty Ltd (1985) 3 NSWLR 114 at 121-127, Priestley JA in Schwarstein v Watson (1985) 3 NSWLR 134 at 143-147, and the High Court (1987) 69 ALR 577.
3. R M Jackson The History of Quasi-Contract in English Law 1936 at S9.
4. Attorney-General v Perry (1733) 2 Comyns Rep 481 at 491 (92 ER 1169 at 1174).
5. Farmer v Arundel (1772) 2 W B1 824 (96 ER 485). See also Ministry of Health v Simpson [1951) AC 251 at 270 and the authorities cited by the Law Reform Committee of South Australia Report Relating to the Irrecoverability of Benefits Obtained by Reason of Mistake of Law (SALRC 84) (1984) at 4.
6. This was equity in the lay sense not the sense of the jurisdiction administered by the Chancellor. Indebitatus assumpsit was a common law action: Sinclair v Brougham [1914] AG 398 at 431-2, 454-6; Mayfair Trading Co Pty Ltd v Dreyer (1958) 101 CLR 428 at 450; J & S Holdings Pty Ltd v NRMA Insurance Ltd (1981) 39 ACTR 1 at 24.
7. Moses v Macferlan (1760) 2 Burr 1005 at 1012 (97 ER 676 at 681).
8. Sadler v Evans (1766) 4 Burr 1984 at 1986 (98 ER 34 at 35).
9. W Holdsworth A History of English Law volume XII at 544. The many early English cases are discussed by C M Stadden “Error of Law” (1907) 7 Col L Rev 476 at 498-502.
10. Holdsworth, note 9 at 542.
11. Lowry v Bourdieu (1780) 2 Doug 468 (99 ER 299).
12. Id at 471. (ER at 300)
13. (1802) 2 East 469 (102 ER 448).
14. Id at 472 (ER at 449-450).
15. Ibid. See further para 4.5.
16. Lord Goff of Chieveley and G Jones, note 2 at 118-119.
17. Brisbane v Dacres (1813) 5 Taunt 143 at 159 (128 ER 641 at 647) .Indeed Lord Ellenborough himself appeared to repudiate the principle in Bilbie v Lumley in his later considered judgment in Perrott v Perrott (1811) 14 East 423 (104 ER 665).
18. See eg Brisbane v Dacres note 17, Kelly v Solari (1841) 9 M & W 54 (152 ER 24) (discussed para 3.3). The nineteenth century cases are discussed in Smith’s Leading Cases in the notes to Marriott v Hampton. The rule was approved in the United States by 1815: Shotwell v Murray 1 Johns Ch R NY 515 at 516. For the United States position generally see 53 ALR 949.
19. Hydro Electric Commission of Township of Nepean v Ontario Hydro (1982) 132 DLR (3d) 193 at 205.
20. For example Chitty on Contracts 25th ed para 1956, Lord Goff of Chieveley and G Jones, note 2 passage quoted in para 2.9.
21. Sawyer and Vincent v Window Brace Ltd [1943] 1 KB 32 at 34.
22. Murray v Baxter (1914) 18 CLR 622 at 630 per Isaacs and Gavan Duffy JJ; Werrin v The Commonwealth (1938) 59 CLR 150 at 158-160 per Latham CJ. See also, generally Cam & Sons Pty Ltd v Ramsay (1960) 104 CLR 247.
23. Kiriri Cotton Co Ltd v Dewani [1960] AC 192 at 204 per Lord Denning.
24. Re Diplock [1948] Ch 465 at 480.
25. Air India v The Commonwealth [1977] 1 NSWLR 449.
26. J & S Holdings Pty Ltd v NRMA Insurance Ltd (1982) 41 ALR 539 at 550.
27. Chitty on Contracts (25th ed 1983) para 1956; Halsbury’s Laws of England 4th ed vol 32 “Mistake” para 72; J G Starke and P F P Higgins (eds) Cheshire & Fifoot’s Law of Contract (4th Aust ed 1981) para 2818; P Winfield Pollock on Contracts (13th ed) at 378; Lord Goff of Chieveley and G Jones, note 2 chapter 4; Peter Birks An Introduction to the Law of Restitution (1985) at 164-167. The rule is generally accepted in the United States (see 53 ALR 949 and G E Palmer The Law of Restitution vol III para7-l4.27) although it has been described by Learned Hand J as a “Most unfortunate doctrine”: St Paul & Marine Ins Co v Pure Oil Co (1933) 63 F (2d) 771 at 773.
28. Hydro Electric Commission of Township of Nepean v Ontario Hydro (1982) 132 DLR (3d) 193. Comprehensive discussions or the rule and its exceptions are to be found in the Law Reform Commission of British Columbia Report on Benefits Conferred Under a Mistake of Law (1981) and the Law Reform Committee of South Australia, note 5.
