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Now we've all had a chance to absorb this one, I thought I'd open the discussion with a few observations. I must apologise for the lack of page references, all I have is a transcript from the web. I have 4 points, which I'll summarise and then explain at slightly greater length.

1. The decision opens up a very broad and very vague head of liability, in complete disregard of principles of finality of transaction.

2. The justification given for allowing recovery is formalistic, not to say vacuous -- as indeed Lord Browne-Wilkinson points out, in somewhat politer language

3. The new rule protects plaintiffs who should not need protection, and fails to protect those who do.

4. However, we needn't lose any sleep over the case, because it will probably in practice be interpreted in a restrictive fashion.

1. The opinions do not spell out what sort of mistakes will ground recovery. This is despite the lack of clarity over which mistakes will do. As liability for mistake of law is new, there is no body of case law to fall back on in defining the liability. Further, the only defences discussed by the Lords are ones they ultimately decided *not* to allow. We are left with vague and "undefined" (Lord Goff's word) defences such as compromise. Points of principle which remain for decision at a later stage :

* What constitutes an actionable mistake of law;

* How we distinguish a compromise based on mistake of law from any other sort of transaction;

* How the defence of change of position is to apply in this context;

* From what point the limitation period runs; when are "reasonable people" expected to recover from a mistake made by the entire legal profession and judiciary ?

The neglect of the principle of finality of transaction is blatant. The decision could in principle be used to upset transactions effected even 200 years ago, given the rather bizarre interpretation of the Limitation Act approved by the majority. Lord Goff himself says that the effects of the decision are likely to engage the attention of judges and others "for some years to come"; he also admits it is obvious that changes in the common law can lead to injustice which the courts cannot correct :

"... 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".

Yet having stated that "of course" this is so, he then ignores the point, with a confidence in the ability of the courts to develop defences which no litigant is likely to share.

For myself, I think the main defect in the law the decision reveals is the absence of a power to surcharge Law Lords for the expense their decisions cause. Good or bad, this decision is going to cost a lot of people a lot of money in legal fees. And for what ? What great injustice is the decision designed to avoid ?

2. The ground of recovery is said to be "mistake". Yet there are obvious logical difficulties with this, ably expounded by the minority. If a payment is made in accordance with the law at the time, where is the "mistake" ? The answer seems to lie in the declaratory theory of law, and in the ancient fiction that when the courts decide a point of law, the law must be deemed always to have been as the courts now say it is.

The majority say that they now recognise the fiction for what it is, and are no longer employing it. But what else justifies their decision ? Their lordships are vague in the extreme on this point. Lord Hoffmann says that it is "purely abstract" to point out that the fiction *is* a fiction, but he doesn't explain how that stops it being accurate, Lord Goff at least realises that there is an alternative -- prospective overruling -- but dismisses this with the observation that this has led to "controversial results", as if that settled the matter, Nor does he consider Lord Browne-Wilkinson's proposal, which is to leave retroactivity in place but to deny it can be used to ground recovery for "mistake". Lord Goff vaguely adds that presumably the rule he favours is the law elsewhere in the world too :

"Since I regard it as an inevitable attribute of judicial law-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."

I am irresistibly reminded of opinions of the privy council in the last century, which begin with the terse statement that the law of whatever country they are concerned with must surely be the same as that of England, and so the committee will resolve the dispute by reference to English cases alone. But at least those 19th century opinions confined themselves to the Empire, whereas Lord Goff, it seems, has designs on the whole world.

In sum, then, the majority claim to understand that the common law develops over time, but have yet to admit that this should cut both ways. Parties who transacted on the basis of the law in 1930 were not "making a mistake" simply because a court in 2000 takes a different view of the law, and justice does not require us to apply the later law. Just as the law of 1930 is not fit for 2000, so the law of 2000 is not fit for transactions effected in 1930.

3. Like the recent Parc Battersea decision, the Lords disregard questions of fault, basing themselves no doubt on the dogma that unjust enrichment is a distinct concept from fault. The Parc Battersea decision, as others have pointed out, treats city banks as deserving the protection of the courts from the consequences of their own mistakes. They must be treated like vulnerable children, unversed in the ways of the world. This is more arguable on the facts in Kleinwort Benson, but the decision is obviously capable of being so used : it is no defence that the plaintiff was in as good or a better position than the defendant to notice the "mistake".

Weaker parties, by contrast, who could see that a payment demanded of them was arguably unlawful but lacked the financial muscle to litigate, will no doubt be told that they cannot recover for mistake of law, because they passed up their chance to litigate, and compromised instead.

4. However, none of this matters much, in my view. Concerns over "floodgates" are usually self-limiting : the judges apply the disputed rule in a narrow manner precisely because of their fear of opening the floodgates, and the result is only a rather timid departure from the old law. "Parturient montes ......" There is so much air in the decision (see point 1), that a judge who wants to interpret it in a narrow spirit will have no difficulty in doing so.

Steve Hedley

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