Imagine the situation; you have an obligation to pay another person a sum of money. You send a payment to them but later find out that they asked you to pay too much. Can you recover the overpayment? Usually the answer is yes, as you will be able to recover the money pursuant to the doctrine of mistake.
What is the Doctrine of Mistake?
Since at least the case of Kelly v Solari in the mid-19th century, the courts have recognised that a person should be allowed to recover money that they have wrongfully paid as a result of a mistake of fact. The case of Kleinwort Benson Limited v Lincoln City Council , later extended this to allow people to recover money that they had paid under a mistake of law (for example, overpaid taxes).
The justification behind the doctrine is that it would be unfair to allow a party that has received a payment in error to keep that money. The doctrine of mistake does extend beyond just payment of money to also cover whole contracts, but that is beyond the scope of this article.
Could I Ever Lose the Right to Recover a Payment?
In short, yes. A person may lose the right to recover a payment paid by mistake, if he knew that the payment might be wrong. This also applies to circumstances where the paying party did not have the relevant knowledge, but could have discovered the truth if they had investigated further. If the paying party decides not to take the opportunity to investigate, he is taken to have assumed the risk and cannot later recover the payment. To quote Lord Abinger in Kelly v Solari:
“The safest rule however, is that if the party makes the payment with full knowledge of the facts, although under ignorance of the law, there being no fraud on the other side, he cannot recover it back again. There may also be cases in which, although he might by investigation learn the state of facts more accurately, he declines to do so, and chooses to pay the money notwithstanding; in that case there can be no doubt that he is equally bound.”
Do you need assistance with a commercial dispute? If so the experienced commercial litigation team at Levi Solicitors can help you. Call to make an appointment for a free initial consultation today on 0113 244 9931.