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Lionel Smith
Wed, 17 Dec 1997 12:08:20
Barclays: the suing bank


Eoin O'Dell wrote:

the invalidity of a contract and a consequential restitutionary remedy are two separate matters.

That seems right but it does not follow that setting aside a contract is not itself a matter of unjust enrichment. IF (which some will contest) legal responses can be said to arise from wrongs, consent, unjust enrichment, and other causes, THEN while enforcing a contract is a response deriving from consent, setting one aside is not necessarily so. It might be so, if viewed simply as an absence of the kind of consent required to generate an enforceable promise. That works better for "void contracts" than for voidable ones. If we ask why the law gives one party an actively exercisable power of avoidance (rather than a finding that there is no contract), then it is difficult to view the source of that power as consensual. Nobody wanted it, saw it coming, or bargained for it. It might be based on a wrong, though the case of innocent misrepresentation shows that it is certainly not always so.

Thus when Eoin goes on:

Finally, neither in O'Brien, nor in any subsequent case, has there been a claim for restitution. Every single such case has been as to whether the Bank C can enforce the contract as against the surety (usually wife) B.

it is at least possible to say that the ability to resist the enforcement of the contract is itself a claim for restitution; that is, the ability to set aside the contract is an example of the law's undoing a transaction which if not undone would result in as much of an unjust enrichment as a mistaken payment.

Even if setting aside a contract is a response to unjust enrichment, nonetheless I fully agree with Eoin that there may be a different test depending on whether one seeks to set aside a contract or an extracontractual transaction. A mistaken extracontractual payment may be unwound just because the payor made a careless mistake of which the payee was ignorant; a mistakenly entered contract cannot be unwound for that reason. It requires more, eg that the mistake was induced by the other party (misrepresentation). So in undue influence, we might say that if one is trying to undo a contract for undue influence, more is needed than if one were trying to recover an extracontractual payment. And it may well be that if one is trying to undo a contract for undue influence exerted by someone other than one's contractual partner, it must be the case that the contractual partner knew of the undue influence.

Indeed that may be the law when one is trying to undo a contract for mistake induced by someone other than one's contractual partner. So said a majority of the Court of Appeal, changing slightly the facts of O'Brien, in Banco Exterior Internacional SA v Thomas [1997] 1 All ER 46, 54c. In that case the analysis is generally along the lines suggested by Eoin and by the above: we are dealing with a question of setting aside a contract and the relevant rule directs us to whether the contractual counterparty had notice of a factor which would be a sufficient reason to set aside the contract had the counterparty itself been the one which generated that factor. "In a case such as the present it does not seem to me to make any sense to ask whether [defendant] had an equity as against [undue influencer] to set aside the transaction [defendant] had entered into with the bank. The question to my mind is simply whether the bank had any actual or constructive notice that [defendant] had entered into the transaction with the bank under undue influence exerted by [undue influencer]." 54ef, per Scott VC.

Steve Hedley wrote:

Would it be fair to say that while in Australia, equity and restitution lawyers are at daggers drawn, whereas in England they are politely ignoring one another ?

I wonder if it is arrogant to say that I think I am both an equity lawyer and a restitution lawyer? Or just someone who likes to read about private law. And yet I feel neither internal strife nor internal indifference. (At least not on this point.) Internal ignorance, perhaps. And some idea that it is not too much to ask of a legal system that its parts should cohere.



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