Scottish Court of Session Decisions

The cause called before a court of five judges, comprising the Lord President (Hope), Lord Mayfield, Lord Clyde, Lord Cullen and Lord Kirkwood for a hearing.

At advising, on 1st December 1994 —

LORD PRESIDENT (Hope)—The parties to this action entered into an interest rate and currency exchange agreement of a type sometimes referred to as a ‘swap’ on 16 July 1987. A swap is an agreement between two parties by which each agrees to pay to the other on a specified date or dates an amount calculated by reference to the interest which would have accrued over a given period on the same notional principal sum, assuming that different rates are payable in each case. Numerous such agreements were entered into between financial institutions and local authorities throughout the United Kingdom during the 1980s. In the present case the pursuers, who carry on business as merchant bankers, and the defenders, who are a local authority within the meaning of sec 235(1) of the Local Government (Scotland) Act 1973, entered into their agreement on a standard form provided by the International Swap Dealers Association Inc. In Hazell v Hammersmith and Fulham London Borough Council it was held that a local authority in England and Wales had no power to enter into a transaction of this kind under sec 111(1) of the Local Government Act 1972 and that the transactions which were under consideration in that case were ultra vires and unlawful. Prior to the decision of the Divisional Court in that action on 1 November 1989 the pursuers had made a series of payments to the defenders which, after allowing for the offsetting of payments by the defenders, amounted to £368,104.52. The agreement was to endure from 17 July 1987 to 17 July 1992, but in the light of that decision no payments were made under it by either party after 17 October 1989.

The pursuers are now seeking repayment of the sum of £368,104.52 from the defenders on the ground that it was paid by them to the defenders pursuant to an agreement which was void ab initio.When the case came before the Lord Ordinary for a debate on the procedure roll the pursuers' claim was presented to him as one which fell within the ratio of Magistrates of Stonehaven v Kincardineshire County Council, in which it was held that money received under a null contract, although not recoverable under contract, was recoverable from the recipient in quantum lucratus. The Lord Ordinary was not satisfied that the remedy described in Magistrates of Stonehaven was available in this case and he dismissed the action. He observed also that, in the light of the reasons given by Lord President Clyde in Glasgow Corporation v Lord Advocate for excluding the operation of the condictio indebiti in cases of error of law, he saw no room for the existence of a general equitable remedy of the nature of recompense in circumstances where the position had been created wholly by entering into a purported agreement in contravention of a provision in a United Kingdom statute or other general principle of law. It is against this decision that the pursuers have now reclaimed.

The argument before us proceeded upon the assumption that it was ultra vires of the defenders to enter into the swap agreement. The pursuers maintain that that was the position, having regard to the provisions of sec 69(1) of the Local Government (Scotland) Act 1973, which is in the same terms as sec 111(1) of the Local Government Act 1972. Counsel for the defenders said that he wished to leave this point open for argument in the event of there being an appeal to the House of Lords against the decision of the Inner House in this case. But he was content for present purposes to accept that the decision in Hazell v Hammersmith and Fulham London Borough Councilapplied also to Scottish local authorities. It was also common ground that the effect of that decision was that the swap agreement in the present case was void ab initio and that no provision for the situation which had arisen in the light of that decision was available to either party under the contract. Counsel referred to various provisions in the swap agreement about early termination as part of his argument about what was equitable and I shall return to this point at a later stage in this opinion. But he did not seek to invoke any provision of the swap agreement by way of a defence to the pursuers' claim, or to contend that the pursuers were barred by its provisions from seeking a quasi-contractual remedy.

The pursuers' claim may be described generally as one for the recovery of money on the ground of unjustified enrichment. Their first plea in law states: ‘The sum sued for having been paid by the pursuers to the defenders pursuant to an agreement void ab initio, the pursuers are entitled to repayment thereof as concluded for.’

The wording of this plea suggests that the claim may be founded upon the condictio indebiti. The explanation for the payment which appears from the pursuers' averments is that the sum sued for was paid in the mistaken belief that it was due, as it was only subsequently that they discovered that the swap agreement was ultra vires of the defenders. But in Glasgow Corporation v Lord Advocateit was held that the condictio indebiti does not apply to a case of error of law in the interpretation of a public statute and that decision was applied in Taylor v Wilson's Trustees. It was in recognition of the rule established by these cases that the pursuers sought to persuade the Lord Ordinary that a remedy was available to them in recompense as described in Magistrates of Stonehaven v Kincardineshire County Council. In their grounds of appeal the pursuers submit that the Lord Ordinary erred in holding that the present case does not fall within the ratio of the decision in that case and that it fell within the ratio of Glasgow Corporation v Lord Advocate and Taylor v Wilson's Trustees. They also submit that these two cases were in any event wrongly decided, that they cannot be reconciled with Magistrates of Stonehaven and that they should accordingly be overruled. Their reclaiming motion was put out for a hearing by a court of five judges to enable them to develop this latter argument. In the result their claim was presented to us a being one for repetition under the condictio indebiti, on the submission that the fact that their error was one of law was not a bar to it. The remedy of recompense on the Magistrates of Stonehavenprinciple was relied upon only in the alternative.

This change in the order of presentation of the pursuers' argument is an illustration of the problems which have been created by the error of law rule for an orderly development of the law of unjustified enrichment. As Lord President Inglis pointed out in Watson v Shankland at p 152, in the Roman system the demand for repayment from one party to a mutual contract took the form of a condictio causa data causa non secuta or a condictio sine causa or a condictio indebiti according to the particular circumstances, while in our own practice these remedies are represented by the actions of restitution and of repetition. This passage was referred to with approval, as expressing the law of Scotland on this matter, by Lord Dunedin in Cantiere San Rocco v Clyde Shipbuilding and Engineering Co Ltd [1924] AC 226 at p 124. To these actions there may be added the action of recompense, in order to complete the list of remedies which are available. As a general rule it would appear that restitution is appropriate where the demand is for the return of corporeal property, repetition where the demand is for the repayment of money and recompense where the defender has been enriched at the pursuers' expense in the implement of a supposed obligation under a contract other than by the delivery of property or the payment of money. Recompense will be available, as a more broadly based remedy, in cases where the benefit was received by the defender in circumstances other than under a contract or a supposed contract.

This brief summary ignores many problems, as Scots law still lacks a clear and coherent structure in this field: see Niall R Whitty, Some Trends and Issues in Scots Enrichment Law, 1994 JR 127. And in the classical Roman law the condictio causa data causa non secutaseems to have applied in cases where, under the existing law, there was no contract: see R Zimmerman, The Law of Obligations (1990), p 843, where the history of this whole matter is discussed. But the important point is that these actions are all means to the same end, which is to redress an unjustified enrichment upon the broad equitable principle nemo debet locupletari aliena jactura. Thus the action of repetition, to take this as an example, may be based upon the condictio causa data causa non secuta, the condictio sine causa or the condictio indebiti, depending upon which of these grounds of action fits the circumstances which give rise to the claim. The nature of the benefit received by the defender and the circumstances on which the pursuer relies for his claim ought, in a properly organised structure for this branch of the law, to provide all that is needed for the selection of the appropriate remedy. The selection is distorted if there is introduced into the structure a rule which is essentially one of expediency rather than of equity between the parties, which was how Lord Cameron described the error of law rule in Taylor v Wilson's Trustees at p 157. It becomes wholly disorganised if that rule is applied to one of the remedies within the system and not to others, with the result that a pursuer is driven to seeking another less appropriate remedy to escape from it.

It seems to me to be clear that the appropriate remedy in the present case is an action of repetition under the condictio indebiti.In my opinion the condictio indebiti is available for the recovery of money paid or property transferred under an obligation which is void but was erroneously thought to be valid. So I do not wish to take up time in this opinion by discussing the alternative claim of recompense on which the pursuers relied primarily in the Outer House. The attraction of it to them at that stage was that in his opinion in Magistrates of Stonehaven at p 769 Lord President Normand said that it had to be taken that the lender in that case knew the statute law governing the county's power to borrow and therefore was aware that the transaction was ultra vires. The basis for this observation would seem to be the maxim ignorantia juris neminem excusat which has frequently been referred to in support of the error of law rule. He went on to say that a solution to the problem was clearly indicated by the institutional writers, namely the obligation of recompense by which the lender could have sued the local authority for the money received by it in quantum locupletior.There is, however, an important distinction between that and the present case, in that in that case the transaction was one of loan. The money was not paid by the lender to the local authority in implement of any obligation to pay it which was assumed to exist between them. Repetition under the condictio indebiti would not therefore have been appropriate, leaving aside altogether the problem which would have been created, if applied to this remedy, by the error of law rule. We were not referred to any case in which recompense had been held to be the appropriate remedy for the recovery of money paid to the other party in performance of a supposed obligation under a contract which has been found to be void.

The Lord Ordinary held that the present case does not provide the considerations appropriate for an equitable remedy in quantum lucratus and that for this reason Magistrates of Stonehaven did not provide a proper basis for the pursuers' claim. The explanation which he gave for this opinion is that, once the contract had been entered into, time had passed and interest rates had been determined, the sums due to or by either party were fixed as a matter of calculation without further requirement for the performance of any obligation by either party. He concluded that the decision that the swap agreements were ultra vires and void had no effect other than to limit the period for which the arrangements would have been given effect between the parties.

These arrangements are somewhat complicated, but in my opinion they rested upon obligations which each party undertook to the other under the supposed contract. While it is no doubt true that all that was needed was to calculate the sums due inter se at appropriate intervals, the sums resulting from those calculations were paid over from one party to the other in implement of supposed obligations under the contract. And, while the decision to stop making these payments had the effect of limiting the period over which effect would otherwise have been given to the swap agreement, the assumption upon which that decision was taken was that the swap agreement was void ab initio. That is the basis of the pursuers' claim, which the defenders have conceded to be well founded for the purposes of the argument in this reclaiming motion. Thus the payments were made in implement of a supposed obligation under a contract which was discovered not to exist and the recipients of the payment were enriched because the payment was of money to which they were not entitled. Leaving aside any equitable considerations which might suggest that the defenders should keep the money, I would regard this as a clear case for a remedy on the ground of unjustified enrichment. On the pursuers' averments, which have now been admitted, the defenders were enriched at their expense to the extent of the sum sued for and, if recompense were the appropriate remedy, I would see no reason in principle why it should be denied to them.

The question which lies at the heart of this case, however, is whether the fact that the pursuers' error was an error of law is sufficient to defeat their claim. Counsel for the pursuers accepted that, if the error of law rule applied so as to exclude the operation of the condictio indebiti, there would be no good reason why it should not also exclude their remedy in recompense. Counsel for the defenders adopted this approach also and submitted that in logic an error of law should exclude the remedy irrespective of whether it was one of repetition under the condictio or of recompense. But counsel for the pursuers' argument was that the error of law rule was not part of the law of Scotland and that it was sufficient for the pursuers to aver that the sum sued for had been paid in error to the defenders when it was not due to them.

This question is one which has been the subject of discussion among jurists for centuries. The interesting and well-researched argument to which we listened in this case has demonstrated that at various stages in the history of the debate first one side and then the other appeared to be winning the argument and that interventions by the judges have not always been helpful to its development. Our task in this case is to ascertain and declare where Scots law stands on the matter, but it is instructive to see how the law has developed in other countries, notably Australia, Canada and South Africa, whose traditions have been influenced, as ours has, by the way English law appeared to settle the point at the beginning of the 19th century when its ability to impose solutions on others was at its most powerful.

The discussion has been greatly assisted in recent years by the work of academic lawyers, whose detailed research and vigorous criticism have already had a marked influence on debate among the judiciary. Lord Goff of Chieveley has already paid tribute, in Woolwich Equitable Building Society v Inland Revenue at p 166, to the work of Professor Peter Birks in this field. In Willis Faber Enthoven (Pty) Ltd v Receiver of Revenue at pp 216–217 Hefer JA referred to the extensive research which had been conducted by Professor W de Vos and Professor D P Visser. In Hydro-Electric Commission of the Township of Nepean v Ontario Hydro Dickson J, in his powerful dissenting judgment, drew extensively on the comments of academic writers in reaching his conclusion at p 367 that, once a doctrine of restitution or unjustified enrichment is recognised, the distinction as to mistake of law and mistake of fact becomes simply meaningless. His dissenting judgment was referred to with approval in Air Canada v British Columbia. The influence of these commentators and of the conclusion which Dickson J drew from them can be seen also in David Securities Ply Ltd v Commonwealth Bank of Australia in the opinion of Mason CJ and others at p 375. In this country Niall R Whitty of the Scottish Law Commission deserves special mention among others who have made important contributions both in their published writings (see, eg, 1994 JR 127) and at seminars. I believe that we are better placed now than our predecessors were at two critical stages in our history, at the start of the 19th century and when Glasgow Corporation v Lord Advocatewas being debated 36 years ago, to reach an informed decision as to whether the error of law rule really is part of Scots law.

The debate can be traced back to the Roman law, where passages may be found in the main texts of the Corpus Juris to support either side of the argument. In Glasgow Corporation v Lord Advocate at p 243 Lord Sorn referred to the clear statement in CI, xviii, 10 that error in law would not support a condictio: cum quis jus ignorans, indebitam pecuniam persolverit, cessat repetitio. See also D.XXII, 6, 9, pr which is to the same effect. But, as Heffer JA pointed out in Willis Faber at p 217, no such distinction was drawn in the texts which dealt specifically with the condictio indebiti. They speak generally of the claimant being ignorans or as having acted per errorem, without limiting the remedy to cases where payment was made as a result of an error of fact: D.XII, 6,1,1; C.IV, v, 1, pr. At p 217E he said: ‘But there were more material points of difference arising from other texts which were either irreconcilable or susceptible to different interpretations and from which an almost random selection could be made according to each writer's personal preferences.’

Lord Sorn's view was that, while in the earlier period the argument appears to have been to some extent controversial, the better opinion seems to have been that an error of law did not provide a good ground for the condictio. But the more detailed research to which Hefer JA refers has shown that from the time of the glossators the jurists were never in agreement and that after the reception of the Roman law in Western Europe two very distinct schools of thought developed, with the result that there was a clear division of opinion among the Roman-Dutch writers on this point.

Stair I vii 9 drew no distinction between errors of law and errors of fact in his statement of the condictio indebiti. In his second edition (1696) he described the condictio in these terms. ‘Restitution extendeth to indebite solutum, when any party through error delivereth or payeth that which he supposeth due, or belongeth to another; if thereafter it appear that it was not due to that other, he who receiveth it is obliged to restore, and yet not by paction or contract.’

But it was not long before the issue was the subject of decision by the court. In Stirling v Earl of Lauderdale the condictio indebiti was sustained to one who had paid under an error of law. The brevity of the report of this case in Morison's Dictionary, which is confined to a single sentence, has encouraged the view that no weight can be attached to it. I shall return to this point later. But in Bankton I viii 23 and 24 (1751) there is a clear statement that error of either fact or law will do and that the rule is: ‘That undue payment or delivery made through error of fact or law must be restored, where there is no just cause to support it.’

Erskine III iii 54, first published in 1773, states under reference to the indebiti solutio, as printed in Nicolson's edition (1871): ‘Civilians are not agreed whether it takes place where one pays the indebitium through a mistake in law; because by a known maxim Ignorantia juris neminem excusat; but the Court of Session F has justly sustained action even where the payment had proceeded upon an error of law; because the action being grounded on equity, the payer ought in equity to have redress from whatever mistake the indebitum was paid.’

The authority which is given for this statement is Stirling v Earl of Lauderdale. In Carrick v Carse, Stirling's case was referred to in the pursuer's argument, together with Bankton, as authority for what was described as the received doctrine of our law, namely that it makes no difference whether the mistake arises from ignorance of law or fact of whatever species and that the money must be restored on the common principles of justice unless it appears that it was given as a donation. In Morison's report of that case at p 2933 it is stated that the bench were in favour of the pursuer's argument, as it was observed: ‘It makes no difference whether the payment was made from error of law or of fact; it is sufficient that it proceeded from mistake; and, when payment is made sine causa, it will be presumed to have proceeded from error, and not donation, unless the contrary can be proved.’

Hailes's report of the case, at p 783 of his Decisions, reveals that, while repetition was ordered under the condictio indebiti,there was a difference of opinion on some matters among the judges. But Lords Kaimes, Gardenston and Braxfield, who constituted the majority, were in the pursuer's favour, and Lord Braxfield said that he could see neither equity nor justice in denying the pursuer of his money ‘through whatever sort of ignorance it was paid’. It should be noted that in Dickson v Halbert at p 589 the Lord Ordinary (Robertson) pointed out that the case actually decided proceeded on an admission that the party when he made the payment knew the law but was ignorant of an essential fact. The value of the case lies therefore in the observations, which were consistent with the decision in Stirling v Earl of Lauderdale. Keith v Grant is not directly in point, but it can at least be said not to be inconsistent with this line of authority. In Meiklejohn v Erskine the pursuer's claim was for repetition of sums equal to the amount of duties payable to the government on malt which had been ground at the defender's mill. The pursuer had overlooked the fact that it was his responsibility to account for and pay tax, but his error of law on this point was not seen as a bar to the claim as it was not raised against him in the argument. The note to Stair I vii 9 in More's edn (1832), observing no doubt that Stair himself had made no comment on the point, states: ‘But if the payment should be made under a mistake, either in fact, or in law, the condictio indebiti will lie.’

The authorities referred to in this footnote begin with Stirling v Earl of Lauderdale. Baron Hume's Lectures, as delivered during the last year of his tenure of the Chair of Scots Law in the University of Edinburgh, in 1821-22, deal with the point in volume III at p 174 in these terms: ‘As to the nature or description of the error in other respects — it seems not to be of any moment (though commentators have much disputed about it) whether the error be in point of law, or in point of fact.’

Counsel for the pursuers submitted that, so far as Scots law was concerned, the choice as to what to do about the error of law rule had already ben made in 1733, in conformity with equity, before the debate was renewed by Lord Brougham's observations in Wilson and McLellan v Sinclair and Dixons v Monkland Canal Co. But there is no doubt that, although these observations were obiter, they had a profound effect on the way in which the subject was dealt with by the judges during the next 140 years. This culminated in the decision in Glasgow Corporation v Lord Advocate which appeared to settle the point in conformity with Lord Brougham's dicta. The Lord Ordinary in that case, Lord Wheatley, gave a detailed account of the progress of this chapter in the debate from 1830 onwards at pp 214–219. His conclusion from this review was that the law of Scotland had by 1958 reached the position, generally speaking, that an error of law did not found an action based on a condictio indebiti: see also his opinion as Lord Justice-Clerk in Taylor v Wilson's Trustees at p 155. Counsel for the defenders was prepared to accept that the point was still technically open for decision before Glasgow Corporation v Lord Advocate, but he submitted that the error of law rule had in practice already been assimilated into Scots law by that point and that it was now so deeply rooted here that it should not be disturbed.

It is clear from a study of Lord Brougham's observations that they were delivered almost wholly from the standpoint of English law, without any detailed examination of the position which had hitherto been adopted in Scotland. In Wilson and McLellan v Sinclair at p 409 he said: ‘When a person pays money under a mistake, he has no right to recover that money, unless where it was a mistake in point of fact. If he pays by mistaken point of law, there was at one time a little doubt in Westminster Hall; but it is now settled, that he has no right to recover it back again.’

He added that he did not find it alleged at the bar that that was not the law and none of the Scottish authorities which are listed at the end of the report deal with this point. In Dixons v Monkland Canal Co, however, it is clear that the point was argued under reference to the Scottish authorities. Lord Brougham noted at the outset of his observations in this case at p 449 that there had been a great difference of opinion among the Roman lawyers on the matter. He then disposed of Carrick v Carse on the ground that to make no difference between error of fact and error of law would lead to absurdity. He went on at p 450 to say this: ‘Now I apprehend it is from a view of all these inconveniences, and the interminable mischief that would arise from allowing that defence to be set up, and the impossibility of affixing such a qualification to the proposition of ignorance of the law being a sufficient objection, that our Courts here have uniformly laid down the rule, according to the case which has been referred to of Bilbie v Lumley, and that case in 2d East which I have referred to since the argument began.’

Of Stirling v Earl of Lauderdale and Erskine he said at p 452: ‘Now this is certainly as meagre a case as I ever heard cited, and for aught I know, if the facts came to be looked into, it might not bear out this conclusion attempted to be drawn from it. It is a case which has very little weight with me. As to the authority of Erskine, when a principle is manifestly dangerous, and one which cannot be followed without grievous abuses, which no limitations that can be assigned to it are in the least likely to prevent, it would require even stronger authority than his to induce me to follow such a principle.’

His observations were expressly stated at p 453 to be obiter.But they amounted to a powerful invective against the Scottish authorities, based on the position which had been adopted in England in Bilbie v Lumley, and supported by reference to the maxim ignorantia juris neminem excusat and practical considerations to avoid what he saw as an absurdity.

In Bilbie v Lumley the action was one for money had and received. The view which was reached in that case appears to have been expressed in an extempore judgment. The relevant part of the report is in these terms. ‘Lord Ellenborough CJ asked the plaintiff's counsel whether he could state any case where if a party paid money to another voluntarily with a full knowledge of all the facts of the case, he could recover it back again on account of his ignorance of the law? [No answer being given his Lordship continued;] … 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.’

That case became recognised as authority in English law for the broad proposition that recovery will not be ordered of monies paid under a mistake of law. But Lord Ellenborough's dictum has been described by Lord Wright as ‘hasty and ill-considered’ (Legal Essays and Addresses, Preface, p xix (1939)) and it has been severely criticised in both Canada and Australia. In the Nepean case Dickson J at p 358 pointed out that in a later case Lord Ellenborough said that it seemed difficult in principle to say that a mistake in point of law could not have the same operation as a mistake in point of fact and added: ‘This correct statement of law seems to have been overlooked by later authorities and Lord Ellenborough's instanter and erroneous statement in Bilbie v Lumley survived. The apparent simplicity of the distinction between law and fact had immediate judicial appeal and generated a voluminous jurisprudence despite the falsity of its foundation.’

In David Securities at pp 371-372 it was observed that Bilbie v Lumley, while probably correct on its facts, had, despite its dubious foundation, become entrenched as a decision denying recovery where the mistake of the plaintiff was one of law, which the High Court held was not part of the law of Australia. Misgivings had already been expressed in Scotland about the effects of the error of law rule. Bell's Principles (10th edn 1899), footnote (1) to para 534 contains this passage: ‘It is doubtful whether the rule, as stated above, is that which accords best with the natural development of our law; but the rule of the English common law was thrust upon us by Lord Brougham; and our Judges have not yet had occasion to apply to it the modifications to which it is subject in England in equity and even at common law.’

I do not think it is necessary to go further into the development of the English law on this point. In Woolwich Equitable Building Society v Inland Revenue Lord Keith of Kinkel said at p 154 that the rule that money paid under a mistake of law is not recoverable, though heavily criticised in academic writings and elsewhere was, in his opinion, too deeply embedded in English jurisprudence to be uprooted judicially. The decision of the majority in that case, although far-reaching in that it recognised a prima facie right of recovery based on payment of money pursuant to an ultra viresdemand by a public authority, did not go to the length of declaring that the rule was no longer part of English law: see Lord Goff at p 177. The question for us is whether the law of Scotland was already settled prior to Lord Brougham's observations in 1830 and 1831 and whether Glasgow Corporation v Lord Advocate was wrongly decided on this point. This takes me back to Stirling v Earl of Lauderdale, which was reported so briefly in Morison's Dictionary.

As a footnote to the report at p 2930 it is stated: ‘See The particulars of this case in the Appendix.’ Unfortunately there is no Appendix either to the title on the condictio indebiti or anywhere else in the volumes which contains these particulars. Whether the Appendix was ever prepared, and if so what it said, is now lost to us, with the result that all we have of the case in the report is the single line which states what was decided. Lord Brougham and others, including Lord President Clyde in Glasow Corporation v Lord Advocate at pp 231 and 232, have regarded the brevity of the report as wholly unsatisfactory and concluded that the case cannot be taken as a sure foundation for the rule which it states. But, thanks to the industry of the pursuers' counsel, we have been shown copies of the petition and answers in this case which they have discovered among papers kept in the Advocates Library. These documents reveal what the case was about and they show that it was the subject of detailed argument under reference to authority. As these papers are not readily available it may be helpful to quote some of the relevant passages.

The dispute arose out of a contract of marriage under which the Earl of Lauderdale became bound to pay a sum to his son's wife in liferent. She survived her husband and then assigned her liferent to the petitioner, William Stirling. After her death, which occurred shortly after Martinmas 1726, Stirling entered into an accounting with the Earl for what was due to the date of her death. He received payment of the Whitsunday term which, as it did not fall due until after her death, was a term more than he was entitled to. The Earl then sought to retain, as compensation, a sum due by him to Stirling under a heritable bond against the amount which Stirling had received which was not due to him on account of the liferent. Stirling responded by serving a charge on the Earl for the balance due on the bond which had been withheld from him. The Lord Ordinary sustained a suspension of this bond at the Earl's instance, whereupon Stirling sought review of his interlocutor by petition to the Inner House.

In Stirling's petition the following passage appears. ‘And, first, I humbly conceive it very well deserves your Lordships’ consideration, how far any action of repetition is competent to a person who pays errore juris to another what is not his due. It is a question intirely new, upon which we have neither statute, decision of the Bench, or opinion of any lawiers: For, tho' the Earl's lawiers affirmed, that my Lord Stair's authority was of their side, page 63d of his Institutes, it plainly appears that he has given no opinion upon it, nor so much as stated the point: All he says is in general, that a person, who, through error, solvit indebitum is founded in a repetition, and so say all the Roman lawiers that have writ upon the subject; but he does not descend to consider, whether that error or mistake is to be meant only of an error in fact, or it likewise comprehends an error in point of law; and yet that is the only question in debate betwixt the parties.

‘Where our own law is utterly silent your Lordships' use to cast your eyes upon the Roman law, where we find it for a maxim running through the whole system, That ignorantia juris neminem excusat…; and this rule does not concern the case of delicts only, as the Earl would pretend, but is most expressly applied to the very point in hand, to the case of indebiti solutio, L 10 Cod de juris et facti ignorantia … from which text, and others, which decide particular cases according to the rule there laid down, Cujacius, Perezius, Donellus and a great many other Commentators of the first note, have given it as their opinion, that no action is competent to him who ha paid indebitum errore juris; and your petitioner begs leave to refer particularly to Cujac Obs Lib 5 Cap 39 who answers fully the objection made by the commentators who have taken the other side of the question.’

The answers for the Earl of Lauderdale contain the following passages: ‘It is answered, that it can by no means be admitted to be the doctrine of the Roman law, that there is no repetition of a payment made errore juris; that though the Commentators quoted in the Petition seem indeed to be of that opinion, others are of the contrary opinion; and in that variety it remains for us to take up with that side who establish their opinion upon the most solid grounds of natural equity and justice; that as the Roman law is not with us authoritative, that it has influence no further, than it is able from its equity and expediency to perswade: Were their difficulty arising from the letter of any particular text, however that may be enough to govern the Commentators, whose business only is to lay open the doctrine of the law, that would be no rule to us, if in that particular it did appear destitute of that foundation in equity on which account only we regard it.

'And first, as to what is the doctrine of the Roman law, it should take up a good deal of time to run through the several texts which the Commentators on it have of either side appealed to on this point; and the Petitioner has been much in the right in touching this point so gently.

'It may suffice to mention a text or two, and to offer what occurs to be the true meaning of the particular text taken notice of in the petition; for, as I have said, I take the point more to ly on this other consideration, How far it can be maintained, upon the principles of reason and equity, that repetition is, or is not competent of what is errore juris solutum to which I shall next proceed.

'Upon the general Question, what is the established doctrine of the Roman law in this particular? it is material to observe, that in all the texts in the long title in the Pandects de cond indeb there is not one which limits the action to the case of an error in fact, or which refuse it in the case of an error in law; but all of them give the action solventi per errorem, in general terms, … and refuse only to the person who knowingly pays. …

'But now, suppose for once a difficulty from the Roman law on this point, I cannot agree that it is to be a rule with us, unless the decision of it were supported upon principles of equity and justice. Did I need to quote an authority for this, I have it from your Lordships decisions, June 10th 1665, Swinton v Holman; where it was expressly found, that the civil law obligeth not us; only we ought to consider the equity and expediency of it.

'Now, by this rule let the present question be tried: everybody must agree, that the condictio indebiti is introduced ex aequitate. Now, with what equity can one to whom any thing is paid, however much errore juris, oppose repetition, where there was no sort of obligation upon the payer?

'The great rule of equity is, that nemo debet locupletari cum alterius jactura; which should plainly be transgressed, were repetition denied in jure erranti. Nay I cannot see the opposer of the repetition can justify himself from iniquity. He pleads that every man is presumed to know the law; must not he then admit that he knew it himself, and yet took what he knew was not due to him, from a person, who, whatever be the presumption of the law, in reality was in a mistake?

'In the last place, if the doctrine of the Roman law could be thought with the petitioner, it is certain it is not now followed anywhere; for it we can depend upon the authority of Hugo Grotius manud ad jurispr Hol lib 3 Cap 30 n 19 or Van Lewen cens for part 1 lib 4cl4 n3. repetition is competent by the custom of Holland in jure, no less than in facto erranti; and our own learned author the Lord Stair, p 63 of his Instit tit Restit para 9 lays it down as law with us, That where any thing is paid errore, it may be repeated condictione indebiti, without mentioning any distinction whether that error was in facto, or in jure.’

It is clear from these quotations that the court had before it in that case all the relevant arguments on either side of the debate.

Although we do not now have any record of the opinions of the judges on these issues, the decision itself is clear and it was regarded both in subsequent decisions and by the institutional writers and other commentators as having settled the point. In Glasgow Corporation v Lord Advocate the court decided to depart from this line of authority. But in my opinion the reasons which are given for this decision are not satisfactory. Great weight was attached to the obiter views of Lord Brougham. Those views, however, do not in my opinion, when critically examined, justify the respect which they have been given in preference to the Scottish authorities. Lord President Clyde said at p 232 that his main reason for holding that the condictio did not apply in that case was that the doctrine was an equitable one. But in his discussion of this point at p 233 he made it clear that his concern was not with the question what equity might demand as between the two parties to the transaction but as to the effect on parties to other transactions where the same error of law had been made. He went on to develop Lord Brougham's point, which had already been repeated by Lord Ardmillan in Youle v Cochrane at p 433 and by Lord Moncreiff in Agnew v Ferguson at p 885, that the error must be excusable. This led him to say that the doctrine ignorantia juris haud excusat came into play and thus renders the ignorance devoid of that equitable quality which might otherwise have opened the door to the operation of the condictio.

These points were not new points, as they have been raised in the course of debate on this subject repeatedly throughout the centuries. What was new, and in my opinion was unsound, was to present them as arguments based on equity. The concern expressed about the effect upon other transactions of allowing a mistake of law to receive effect between the parties to the transaction is a matter which would be better described as a consideration of public policy or, as Lord Cameron put it in Taylor v Wilson's Trustees at p 157, of expediency. The application of the maxim ignorantia juris to the condictiohas been demonstrated by others to be misconceived and contrary to equity. Lord Ivory pointed out in Dickson v Halbert at p 597 that the maxim should, if it is to be applied at all, be applied equally to the party who pays as to the party who receives, with the result that he who receives what he is not entitled to should be no more protected than he who pays. In the Nepean case at pp 360–361 Dickson J argued strongly, under reference to Lord Wright's observations, that the maxim, which he said was properly one of criminal or public law, had been wrongly imported into the law of contract. He concluded that, in the case of contracts entered into under mistake of law, it could not serve as a foundation for the rule barring recovery. In David Securities at p 370 the High Court of Australia observed that, although Lord Ellenborough CJ in Bilbie v Lumley had denied recovery on the basis of this maxim, it was wholly inapplicable to the case. In Willis Faber at pp 221–223 Hefer JA noted that for a considerable period of time the ignorantia juris rule had not been of general application in South African civil law and that its application would be inconsistent with decisions in many cases concerned with private rights. He concluded that the administration of law would suffer no ill effects if the distinction between errors of law and fact were to be abolished for the purposes of the condictio, which affected no one but the payer and the payee.

The question whether the maxim ignorantia juris should be applied to exclude the condictio was put before the court as clearly as could be in the pleadings in Stirling v Earl of Lauderdale and the court must be taken to have rejected the argument. I believe that there were good reasons for doing this on logical grounds as well as on grounds of equity. In a case which is concerned only with private rights, the maxim ought to be applied, if at all, equally between the parties. Where the recipient is as ignorant of the law as the payer, he should, in a case of unjustified enrichment, be in the same position as regards the consequences of his own ignorance as the payer is as regards his. In any event, the absolute nature of the rule leaves no room for considerations of equity between the parties. It is out of place in a discussion about private rights, where a party is not seeking to be excused from his ignorance but is seeking to show merely that his payment was a mistaken one and not to be taken as a gift: see Bankton I vii 31. I think that the error of law rule has no sound foundation in principle and I consider that the court in Stirling v Earl of Lauderdale reached a sound decision on this point. In my opinion the decisions in Glasgow Corporation v Lord Advocate and Taylor v Wilson's Trustees should now be overruled.

Concern may be felt that to reaffirm the decision that a payment not due may be recovered under the condictio indebiti irrespective of whether the mistake was one of fact or law may be too radical a departure from what has been thought to be the law of Scotland for so many years. I do not share that concern. The effect of the decision will require to be worked out in subsequent cases, but in one important field it has already been anticipated, although on other grounds, by developments in English law. In the Glasgow Corporation case the court was obviously much troubled by the effect on other transactions if a change in the interpretation of an Act of Parliament were to enable a party to open up a transaction which had been settled and completed on the law as it was then understood. The typical example might be thought to be where an unlawful demand for the payment of a tax or some other duty made by a public authority has now been found by judicial decision to have been unlawful. In the Woolwich case it has now been held, for English law, that there is a prima facie right in such a case to recovery. By overruling the decision in Glasgow Corporation v Lord Advocate we will be achieving the same result by reference to the principles of Scots law. I regard that as satisfactory, because it would be inequitable that a remedy which is now available in England in this important field of transactions between the citizen and a public authority should be denied here on the ground that it was not permitted by our law. By removing the error of law rule, we will be providing a remedy which will prima facie be available in these cases, but whether it will or will not be given will depend in each case on considerations of equity.

This brings me to the final point on which I wish to comment in this opinion, which relates to the application of the condictio to the circumstances of this case in the light of the way in which it has been pled by both parties. In my opinion the essentials of the condictio indebiti are that the sum which the pursuer paid was not due and that he made the payment in error. These matters must be the subject of averment by the pursuer to show that prima facie he is entitled to the remedy. It is the fact that the sum was not due that provides the ground for repetition on the principle of unjustified enrichment. An averment that the payment was made through error is needed in order to show that this is not a case of donation. It is appropriate to place the onus of demonstrating this point on the pursuer, as he is the party who can best explain why the payment was made although it was not due. There remain the questions whether an order for repetition should be granted, which must depend on the circumstances of each case and on considerations of equity, and whether it is for the pursuer or for the defender to make the averments which are required on this point.

There has been no decision in the Scottish cases of the question whether it is for the pursuer to demonstrate that the equities are in his favour or whether it is for the defender to show that, although he has been enriched, it would be unjust for him to be ordered to return the sum paid to him by mistake. The recent decisions in Australia, Canada and South Africa are not unanimous on this point. In Air Canada v British Columbia La Forest J said at p 192 that, although no distinction should be made between mistakes of fact and mistakes of law in the law of restitution, this did not imply that recovery would follow in every case where a mistake had been shown to exist. He said that it was for the defendant to show whether restitution should be denied. In David Securities at p 384 the majority held that the respondent bore the onus of showing that the order for repayment would be unjust. In Willis Faber on the other hand Hefer JA said at pp 224–225 that it was for the plaintiff to prove sufficient facts to show that his error was excusable, as to do otherwise would be in a majority of cases to require the defendant to produce proof of matters of which he had no knowledge. In my opinion, however, it is not part of the law of Scotland that the error must be shown to be excusable. This is not to say that the nature of the error and the question whether it could have been avoided may not play a part in a decision as to where the equities may lie if the point is raised in answer to the pursuer's claim. I consider, however, that, once the pursuer has averred the necessary ingredients to show that prima facie he is entitled to the remedy, it is for the defender to raise the issues which may lead to a decision that the remedy should be refused on grounds of equity.

In the present case the defenders have raised only two matters in their answers which might be said to relate to this issue, although counsel developed the point further in the course of his argument. After pointing out that the error was one of law, as the defenders at the time of the transaction believed in common with other local authorities in the United Kingdom that thesetransactions were intra vires and that they entered into it as part of their borrowing procedures with the purpose of minimising possible adverse effects of varying interest rates — as a hedge, in other words, against variation in the cost of other borrowings — they call on the pursuers to specify two things. The first is why equity favours repayment to them rather than the protection of public finances. The second is what steps they took to ascertain the vires of the defenders to enter into the swap agreement.

I am not persuaded that there is anything in either of these two points which would justify the retention on equitable grounds by the defenders of the sum paid to them in this case. The first point seems to me to confuse considerations of equity between the parties with questions of public policy. I do not see why a local authority which has received money as a result of a transaction which it had no power to enter into should be held to be entitled to retain it simply in order to protect public finances. Public finances are sufficiently protected by ensuring that the local authority does not enter into transactions which are outwith its powers. It is not necessary for their protection that they should be enriched by the retention of sums paid to them which were not due. As for the second point, the defenders make it clear that they themselves, in common with many other local authorities in the United Kingdom, were unaware that they were acting ultra vires in entering into the transaction. There is no suggestion in their averments that it was already known by others that they were wrong on this point. The error was not revealed until the Divisional Court decided the issue in Hazell v Hammersmith and Fulham London Borough Council. I do not find anything in these averments to suggest that the defenders have any legitimate criticism to make of the error which the pursuers were under at the time of the transaction, which is admitted to have been common to both parties.

Counsel submitted that account should be taken of the complete absence of coercion by the defenders, of the fact that the statutory provision in question in this case, which is sec 69(1) of the 1973 Act, was not conceived for the protection of the pursuers, and of provisions in the swap agreement which, in the case of an early termination of it, would have allowed any loss by either party to lie where it fell. In my opinion, the absence of coercion by the defenders is irrelevant to a claim under the condictio. I do not think that there is any consideration of any equitable nature pointing either way in the fact that the defenders were acting outwith their powers under sec 69(1) of the 1973 Act or in the purposes which the provisions of that subsection are designed to serve. As for the provisions of the swap agreement about early termination and counsel's point that it was by pure chance that the agreement had led to an excess of payments by the pursuers over the sums received by them from the defenders by the time when it ceased to be operated, I consider that these points also are irrelevant. The contract was void ab initio and the whole point of the pursuers' claim is that they have no remedy under it and must resort to the quasi-contractual remedy. In my opinion, the defenders cannot rely on any provision in the swap agreement for any purpose, as it was an agreement which they had no power to enter into. There is no contract which they can invoke as applicable to the circumstances which have arisen upon that contract being held to be void. To put the point another way, there is no provision in the contract on which they can found which would entitle them to retain the payment, which they would not have received had it not been for the speculative nature of the contract which rendered that contract outwith their powers.

Neither party asked for a proof in this case. I consider that the pursuers' averments are sufficient to show that they are entitled prima facie to their remedy. I consider also that the defenders, while admitting that the sum sued for was paid to them by mistake under an agreement which is now seen to be void ab initio, have not made any averments to show that it would be inequitable for the pursuers to recover that sum from them. For these reasons I would allow this reclaiming motion by recalling the interlocutor of the Lord Ordinary and granting decree de planofor the sum sued for. The question whether interest should be allowed on that sum and, if so, at what rate or rates and from what date, has yet to be debated. I would remit that matter to the Outer House for further consideration by the Lord Ordinary.

LORD MAYFIELD —I agree with the opinion of your Lordship in the chair. There is nothing I can usefully add.

LORD CLYDE —The pursuers in this action seek repayment of the net amount which they had paid to the defenders under a swap agreement between the start of the agreement on 17 July 1987 and 17 October 1989. By that stage the pursuers had paid a net total of £368,104.52 to the defenders. The agreement was due to continue until 17 July 1992. Had it continued until that date, it appears that the pursuers would have required to pay a very much larger sum because the difference between the respective interest rates in the agreement operated after 17 October 1989 wholly to the benefit of the defenders. The defenders allege that the total then due to them would have been £977,832.88.

The cessation of payment came about through a decision of the Divisional Court in England that such a swap agreement was ultra vires of a local authority there. That case subsequently reached the House of Lords and is Hazell v Hammersmith and Fulham London Borough Council. When the pursuers raised the present action for recovery of the amount paid to the defenders, the defenders sought to argue that, because of a difference in some of the legislation relating to the borrowing powers of local authorities in Scotland, the case of Hazell could be distinguished and the agreement could still be held to be valid. They accordingly counter-claimed for the sum of £977,832.88. Their argument, however, failed before the Lord Ordinary and was not renewed before this court, although counsel for the defenders expressly reserved his position on the correctness of the decision in Hazell. The single point in the reclaiming motion accordingly is whether the pursuers are entitled to repayment of the amount paid under the agreement.

I pause at this stage to observe that the argument proceeded upon the basis that the contract had entirely fallen. There are elaborate provisions in the agreement relating to early termination but it was not suggested that these should be worked through as applying to the present case in the circumstances which have occurred. It was not altogether clear how the cessation in implementation of the contract came about but it seems to have been by some mutual realisation of the problem created by the decision in Hazell. It was not suggested that there was anything in the contract to resolve the parties' rights in the events which had occurred. The whole argument proceeded upon the basis that the contract was void and that no contractual solution was available to either party.

The circumstances accordingly appear to be in summary as follows. The parties entered the conn-act each believing on advice that the defenders had the power to do so. The existence of their power depended upon the proper construction of the relevant legislation. They appear to have both appreciated that there was something of a doubt about the matter but they seem to have decided to take the risk. It has transpired that the defenders had no such power. Both have acted in implement of the agreement and the pursuers have paid to the defenders a total net sum of £368,104.52. The agreement is now to be seen as void ab initio. The question is whether the pursuers are entitled to repayment of that sum from the defenders.

The pursuers present two alternative foundations for their claim. On the one hand they say that the contract was void ab initio. They say that they have paid money to the defenders on an invalid contract. The defenders have benefited and they themselves have sustained a loss. The defenders should then repay the amount of the benefit which they have received. This approach does not touch upon the problem of error. The pursuers seek support for it from the case of Magistrates of Stonehaven v Kincardineshire County Council. As in that case they describe the claim under this head as one of recompense. It might indeed be thought that this is the formulation presented in the pleadings. They aver that the payments were made following an agreement which they later discovered to be unlawful as being ultra viresof the pursuers and so void ab initio.

On the other hand, the pursuers' claim can also be formulated as one for repayment of money paid in error, in respect that the pursuers did not know when they entered the agreement and made the payments that the defenders were exceeding their statutory powers and that the agreement was void. On this presentation the claim can be categorised under the convenient label of a condictio indebiti, that is to say a claim for money paid where it was not due to be paid. In that context considerations of error arise because an ingredient of the claims of this kind is that the payment should have been made in the mistaken belief that it was due. Error does not feature prominently in the pleadings. It is introduced by the defenders in answer 4 and taken up by the pursuers in reply. But the pursuers also aver in condescendence 5 that, had they known the true position when they paid the money, they would not have paid it. Their plea in law claims an entitlement to ‘repayment’, which might sound like a claim for repetition under the condictio indebiti. Counsel for the pursuers, however, sought to have this plea so construed as to cover both of the two formulations which I have mentioned.

The two formulations are of course in some respects distinct, as was pointed A out in The Royal Bank of Scotland v Watt. In recompense the emphasis is upon the enrichment, the loss and the absence of intention of donation. In repetition the emphasis is upon the payment of money in the mistaken belief that it was due. But the two formulations are closely related to each other and may well be treated as falling under the single descriptive heading of unjust enrichment. The grand rule here is that found in the familiar brocard nemo debet locupletari aliena jactura. Thus Baron Hume in his Lectures (Stair edition, volume III, 172) groups both restitution, as he defines it, and the condictio indebiti as illustrations of the maxim. The two examples have this in common that the basic principle on which the rule exists is one of equity and application of the remedy in any individual case must be determined by equitable considerations.

The principle of nemo debet comes to be expressed in a more formal analysis as c inferring an obligation on the party profiting to repay or compensate the party losing and a right in the latter to claim such a remedy from the former, as if there was a contractual basis for the obligation and its corresponding right. Formal categorisation of the different examples may not be a very useful exercise but the cases of restitution and of negotiorum gestio may form two groups of examples. The term repetition may apply where a payment of money has been made by one party to another in the mistaken belief that it was due in the performance of a legal obligation and the payer seeks to recover what he paid in error. Where the circumstances disclose that by the actings of one party performed without any intention of donation another party has benefited and the equitable remedy falls to be quantified in terms of a payment to him of a sum measured by the extent of the benefit gained by the other the wider term of recompense becomes convenient. But in an area of law where fine analysis or distinction between forms of action may well be dangerous and the overriding consideration is one of equity these labels should be recognised simply for what they are.

Before the Lord Ordinary the pursuers put the greater emphasis on their approach based on recompense. In the reclaiming motion the primary argument was the one based on repetition. The Lord Ordinary refused the claim on recompense essentially on his view of the contract in the present case, holding, as I understand it, that during the course of the contract period there was no performance of any obligation by either party but merely a calculation to be made determined wholly by the passage of time and the movements of interest rates in the money market. The termination of the arrangements did nothing more than limit the period over which the arrangements would have continued. What might have happened thereafter would have been again dependent wholly upon the passage of time and the movements of interest rates and in that context ideas of enrichment could not be applied.

I have found this to be a difficult passage in the Lord Ordinary's opinion but I have not been persuaded that this approach provides a sufficient answer to the pursuers' claim. The fact is that quarterly payments were made by the one arty to the other. Moreover, the making of these payments was a performance of an express obligation under clause 2 of the agreement. There was more happening during the period of the contract than a notional accounting. While it is true that only after the contract had run its full course could one know which party had overall made a gain or loss, nevertheless performance of the obligation was occurring during the contract period. Certainly the case is different from the more usual situation of a coincidence and balance of positive obligations on both sides but it still seems to me that when the arrangements ground to a halt it was possible to identify one party who had in a practical sense gained at the expense of the other. Moreover, what then became evident was that the contract was void ab initio so that the monies paid and the monies received should not have been paid and should not have been received. The one party having gained at the expense of the other might not reasonably be expected to compensate the loser for his loss.

While in many cases of recompense it is actions or services which constitute the substance of the loss and the reason for the gain, the loss in the present case is the loss of money which had been paid. In the case of Magistrates of Stonehaven, on which counsel for the pursuers founded, the lender was taken to have known that the loan was ultra vires but the loan was still held to be one which could have been recovered on the principle of recompense. Counsel for the defenders did not suggest that the case was wrongly decided although he questioned the equity of the loan being recoverable in the circumstances of that case. But if the remedy is one competently open where money has been paid under an agreement which is ultra vires of the one party to it and so null, it may be a separate question whether in the circumstances it is equitable for the court to allow the application of the remedy. But it seems to me that the Stonehaven case is different from the present case at least in two respects. It proceeded on the assumption that at least the lender knew that the authority was acting ultra vires, whereas in the present case, while the pursuers were aware of a possible problem, they believed that the authority was acting within its powers. More importantly, however, the Stonehaven case did not concern the recovery of money paid in satisfaction of a debt erroneously believed to have been due when it was not due but related to the recovery of money paid by way of a loan in what was apparently a voluntary transaction. The claim was then not one for the repayment of an indebitum. So the solution was found in the form of a claim for recompense. The facts of the present case seem to me significantly different from those which gave rise to the remedy applied in the Stonehaven case and it does not seem to me that the case falls to be categorised under the heading of recompense.

The Stonehaven case proceeded on the understanding that the lender knew that the transaction was ultra vires.There was no error or mistake on his part. Counsel for the defenders argued that if the condictio indebiti was excluded where the error was one of law, so also should the remedy of recompense be excluded on such a ground. Counsel for the pursuers on the other hand argued that error of law was not a bar to recompense and for that reason it should not bar a claim in the nature of the condictio indebiti. One essential for a claim for recompense is that there should have been no intent of donation and in that context it may be that considerations of error may come in as throwing light on whether or not there was such an intention. But it did not appear from the cases to which we were referred that error, far less error of law, was a necessary ingredient to be considered in providing a remedy under the brocard nemo debet locupletari. It was pointed out by all the judges in Varney (Scotland) Ltd v Lanark Town Councilthat there were conflicting views on the point but it does not seem to me that error is an essential ingredient although it may very often play a part in the question of possible donation. On the other hand, if error of law, at least in relation to error in the construction of a public general statute, excluded a claim in recompense, a claim on that basis in the present case would fail. But that brings me immediately to the alternative formulation of the present case which is of the nature of a claim for repetition. The Lord Ordinary rejected that formulation as he was bound by the decision in Glasgow Corporation v Lord Advocate, but the correctness of that decision has been raised before this court.

Although the matter was one of divergence of view among the civilian commentators, it appears from the carefully researched argument put before us by counsel for the pursuers that the law of Scotland was settled by the end of the 18th century to the effect that error in law could ground a claim for repetition. The case of Stirling v Earl of Lauderdale, which has hitherto been easily put aside because of the meagre nature of its report, has now been shown by the production of the petition and answers to have been a decision proceeding upon a very full and careful argument. I can only conclude from the papers now made available that the court in 1733 took the deliberate and considered step of affirming that, so far as the law of Scotland was concerned, the condictio indebiti should be allowed whether the error was of fact or of law. This early determination may be seen now as a far more solid authority than was earlier supposed and very different form the later English decision in Bilbie v Lumley, which proceeded without any assistance from counsel. Later in the 18th century in Carrick v Carse the same view was affirmed in the opinions expressed by the bench although in the circumstances of that case the actual error appears to have been one of fact. Here again we have been referred to the more full report by Lord Hailes and the opinions reproduced in that report add considerable weight to the shorter report in Morison's Dictionary.

Further illustrations of the recognition of the principle as part of Scots law can be found in Keith v Grant and Meiklejohn v Erskine. The position which Scots law had reached in the first quarter of the 19th century is reflected in the understanding presented in Baron Hume's Lectures (Stair edition, volume III, 174) where he observed that it seemed not to be of any moment whether the error be in point of law or in point of fact. That the condictio indebiti was available whether the error was of fact or of law is supported by Bankton (Institutes, I viii 215), Erskine (Institutes, III iii 54) and More's Notes to Stair's Institutions (p xlix). It accordingly seems to me that the matter was already one of established law in Scotland when Lord Brougham came to express a view to the reverse effect in the cases of Wilson and McLellan v Sinclair and Dixons v Monkland Canal Co. The observations there made can now be seen as not clarifying a point of doubt in the law but innovating upon existing authority. In the words used in a footnote to sec 534 of Bell's Principles the comment is made, ‘The rule of the English common law was thrust upon us by Lord Brougham’. This disruption to the natural common law development of the established law remained as a source of concern and unease for over a century thereafter. Respect for Lord Brougham's views tended to promote their recognition, but the unease can be seen in the tendency to avoid any absolute rule on error of law (for example, in Dickson v Halbert) in the drawing of a distinction between error in the construction of a private deed and error in relation to a general public statute (for example, in British Hydro-Carbon Chemicals Ltd and British Transport Commission Petrs), and the reluctance of the court to apply the rule (for example, in Taylor v Wilson's Trustees).

I agree with your Lordship in the chair that reconsideration of the decision in the Glasgow Corporation case has now become necessary. One reason is because, as I have sought to explain, it is now apparent that the matter was not technically open to decision as was taken to be the situation in 1959. The research carried out in this case establishes that the point already was one of decided law. Furthermore, the argument that the error must be excusable and ignorance of the law will not excuse does not seem to me to be sound. It may be that if the error can be shown to have been inexcusable that may provide a ground in equity for refusing what would be a competent remedy but the brocard ignorantia legis should not be used to prevent recovery of one's own property. Its significance relates to the unavailability of a line of defence rather than to the unavailability of a ground of action. The counter brocard can be found in Hume's Lectures at p 174: ‘Juris ignorantia non prodest adquirere volentibus, suum vero petentibus non nocet’.

In the Glasgow Corporation case the rule was supported mainly by considerations of expediency. But I am not persuaded that that argument has the force now which it may well have had in 1959. At a technical level the change in the law of prescription and limitation may well reduce the scale of the alleged dangers and on a wider view I do not believe that it can be so confidently affirmed today that the public interest in the finality of settlement transactions should outweigh the interest of private individuals in recovering money which, on a proper understanding of the law, they were never due to pay. I am encouraged in that view by the conclusions reached on this question by the majority of the judges in the case of Woolwich Equitable Building Society v Inland Revenue. Furthermore, even if the rule was justifiable on grounds of expediency, I am not persuaded that it is altogether equitable. It was already seen in the case of Tayloras not being without exceptions. But it then becomes unclear precisely what the exceptions may be. For example, it is not obvious to me why error in the construction of a standard form of contract which might affect very many individuals should enable repetition, as presumably it may under the rule, whereas if the matter is one of public legislation the remedy will not be available. I do not consider that the overruling of the decision in the Glasgow Corporation case is a matter to be left to Parliament, especially where, as now appears, one is seeking to restore the law of Scotland to what it was before it was diverted from its natural development in the 19th century. Moreover, one cannot but be conscious that this field of law is one where definition is not easy. Lord Dunedin stressed the point in Edinburgh and District Tramways Co Ltd v Courtenay at p 105 in relation to recompense and his statement that each case must be judged on its own circumstances underlines the difficulty of attempting anything like a comprehensive or exhaustive analysis. Where the matter is essentially one of equity, there may well be more harm than advantage in attempting any detailed codification.

I come accordingly to the view that there is under Scots law a remedy potentially available to the pursuers in the present case and it is satisfactory that that result is one which accords with the law expressed in several jurisdictions outside our own where the point has been recently explored. There remains the question whether it is or is not equitable that the remedy should be applied in the circumstances of the present case.

I had some anxiety about resolving this matter without having more than the pleadings and the submissions of parties before us, but each side was content to have the matter resolved without further exploration of the facts and, having heard what each side had to say on this aspect of the case, I am satisfied that there is sufficient material to form a concluded view upon it. As regards any question of onus, while some support can be found for the view that it is for the pursuer to aver that his mistake is excusable, I am not persuaded that that correctly reflects the position in the principle of the law which allows a claim to be made for repayment where the money was paid under the mistaken belief that it was due but leaves the granting of that repayment to be governed by equitable considerations relating to the circumstances of each case. Excusability is not an essential ingredient in the principle but may be an element in the decision to grant a remedy in particular circumstances. While I would hesitate to law down any absolute principle on the specific requirements of pleading so far as excusability is concerned, because cases might occur where the circumstances in which the payment was made might require the pursuer to explain why it was equitable in such a context that he should be repaid, it seems to me that almost always the onus will technically lie on the defender. In the circumstances of the present case I see no circumstances in the present case which would require the pursuers to undertake any initial explanation why it is equitable that they should be repaid. The purpose of entering this contract was to provide some possible protection against the effects of inflation. Performance of the contract was not unlawful nor contra bonos mores. Illegality in performance appears to be the ground of distinction between the decisions in Jamieson v Watt and Cuthbertson v Lowes. In the present case each party believed that the agreement was intra vires but realised that it might not be. Nothing has been raised in the defenders' pleadings or their submissions to persuade me that it would be inequitable to grant the remedy sought in the circumstances of the present case. On the whole matter I agree with the course which your Lordship proposes for the disposal of the reclaiming motion.

LORD CULLEN —Before coming to the main issue in this reclaiming motion I would draw attention to certain features of this action which are of some significance. The pursuers seek decree for payment by the defenders of a sum of money equal to the amount by which the total payments made by them exceed the total payments received by them. All such payments were made as being due under the swap agreement between them. Thus, in effect, the general object of the action is to achieve restitutio in integrum upon either side in regard to a partly performed agreement.

The pursuers have used two different bases for the action. The first, and evidently the original, basis is that the swap agreement was void ab initio in respect that it was ultra vires of the defenders. On this basis the pursuers sought to use recompense as the ground for recovery of what they had paid, in reliance on the decision in Magistrates of Stonehaven v Kincardineshire County Council. The second basis, which became the primary one before this court, is that the payments were made by them on the erroneous understanding that they were due, whereas the true position was that the swap agreement was void and accordingly did not give rise to any obligation on either side. On this basis the action is clearly being treated as one of repetition.

The taxonomy of the quasi-contractual remedies which are afforded by the law of Scotland is not a wholly satisfactory state. In particular, the scope of the remedies of repetition and recompense and the boundary between them is not altogether clear. It appears that the law has been developed in a somewhat piecemeal fashion in an endeavour to provide remedies for unjust enrichment which were appropriate to the circumstances and equitable considerations in the particular case.

However, I do not consider that the remedy of recompense is appropriate in the present case. The critical point of distinction between it and the Magistrates of Stonehaven is that in the latter case the payment made by the lender, for the recovery of which it was envisaged that the remedy of recompense would have been available, was not made in implement of a prior contractual obligation. Hence, it was not a claim for recovery of an indebitum. It may be that in such a case the lender is entitled to recover even where he was aware that the borrower lacked the capacity to enter into a transaction with him. That is not a point which requires to be decided in the present case.

In my view, whether the present action is regarded as based on the fact that the swap agreement was void or on the fact that the pursuers were in error as to whether the payments were due, it is in substance an action of repetition. There is a wide variety of situations in which an action of repetition is the appropriate remedy. The most common example perhaps is its use in order to recover money paid in the mistaken belief that it was due — the condictio indebiti (see The Royal Bank of Scotland v Watt). However, other examples are where it takes the form of a condictio causa data causa non secuta or a condictio sine causa (see the opinion of the Lord President Inglis in Watson v Shankland at p 152, cited by Lord Dunedin in Cantiere San Rocco v Clyde Shipbuilding and Engineering Co Ltd at p. 124). On any view, the fact that error accounted for the payments being made in a situation where the agreement was void leads to an assessment of the same equitable considerations. Further, if it is a rule of Scots law that money paid in error is not recoverable, this rule applies however the present action is to be regarded.

On the question whether the error of law rule is part of the law of Scotland I am in full agreement with the conclusion and reasoning which your Lordship in the chair has expressed; and there is nothing which I can usefully add to your Lordship's analysis of the authorities and explanation of the way in which the pronouncements of Lord Brougham in Wilson and McLellan v Sinclair and Dixons v Monkland Canal Co have for so long affected the apparent state of the law of Scotland.

I would, however, add a few observations of my own. It is plain that there is no principle of law which distinguishes error of fact from error of law in regard to the recovery of money or property. The error of law rule is essentially one of expediency rather than equity, as Lord Cameron pointed out in Taylor v Wilson's Trustees at p 157. However, it has been treated as if it were a rule of equity. One might have thought that in the case of a remedy which should be based on an assessment of the equitable considerations in the particular case there is no room for a rule which in effect excludes a category of case regardless of its circumstances. One of the main supports for the error of law rule has been the use of the maxim ignorantia juris hand excusat. The significance of this maxim in the present context can be gauged by reference to the words of Lord President Clyde in Glasgow Corporation v Lord Advocate where he said (at p 233) that this doctrine ‘renders the ignorance devoid of that equitable quality which might otherwise have opened the door to the operation of the condictio’.

However, this is not the use of the maxim in order to enforce the true law against a person but in order to compel him to live with the consequences of the application of bad law. As Dawson J observed in David Securities Pty Ltd v Commonwealth Bank of Australia at p 402: ‘The true principle is that ignorance of the law is no excuse, that is to say, a person cannot escape the consequences of breaking the law by pleading ignorance of it. A person seeking to recover money paid under a mistake of law is not seeking to escape from the law, but to avail himself of it.’

Further, a person seeking recovery is not seeking to obtain an advantage but to avoid a loss. Bankton's Institute, I viii 24 states the rule That ignorance of the law cannot hurt one that is only insisting to be free of a real damage.’ The unsoundness of reliance on the maxim is especially obvious in a case such as the present in which the error was common to both contracting parties. This was a point which was well taken in the answers for the Earl of Lauderdale in Stirling v Earl of Lauderdale. "The great rule of equity is, that nemo debet locupletari cum alterius jactura; which should plainly be transgressed, were repetition, denied in jure erranti. Nay I cannot see the opposer of the repetition can justify himself from iniquity. He pleads that every man is presumed to know the law; must not he then admit that he knew himself, and yet took what he knew was not due to him, from a person, who, whatever be the presumption of the law, in reality was in a mistake?’

I would add that the recognition that the error of law rule has no place in the law of Scotland will put an end to the difficulty, if not impracticability, of distinguishing between an error of fact and an error of law in the construction of contracts and other writings.

In the present case the court was invited by the parties, in the event of it being held that the fact that the error was one of law was no bar to the pursuers' action, to dispose of the action as a matter of relevancy without the need for a proof. In the course of that discussion submissions were made as to the onus on a pursuer in an action of repetition on the ground of error. It was suggested that it was for the pursuer to aver facts and circumstances from which it could be inferred that the error was excusable and, more generally, facts and circumstances which rendered it equitable that the remedy of repetition should be granted.

As far as concerns the excusability of error, there are a number of judicial statements to which we were referred which can be used in order to support the proposition that the pursuer's ignorance must be excusable before it will sustain a condictio indebiti. However, it does not appear that any such rule was recognised by the institutional writers. It is clearly stated by them that the pursuer has to exclude an animus donandi and for that purpose requires to aver that he paid under error as to the payment being due. The judicial statements appear to have their origin in the speech of Lord Brougham in Wilson and McLellan v Sinclair at p 409 where he used the proposition that the error must be excusable, as it had to be according to English law at that time, as a means of justifying the error of law rule. I am of the opinion that, while it will be of very great importance to determine whether or not the error was excusable as one of a number of factors which require to be taken into account in reaching a judgment as to whether it is equitable to order repayment, there is no rule of law to the effect that it is essential that the error should have been excusable.

In regard to the wider submission I do not consider that it is for the pursuer, if he is to make out a relevant case, to make averments in regard to all the factors which may conceivably be relied upon on either side of the case. The resolution of an action of repetition depends upon assessment of a number of factors, the scope of which cannot be predetermined. No doubt the pursuer has to aver that he made payment on the erroneous understanding that it was due and for that purpose he has to set out averments as to the nature of that error, how it arose and how it accounted for his making the payments. The need for greater particularisation will depend on the extent to which these matters are peculiarly within his knowledge, according to the circumstances of the particular case.

In the present case the defenders admit that the sum sued for was paid to them in error under an agreement which was void ab initio.They have put in issue a limited number of factors on the basis of which they maintain that it would not be equitable for the pursuers to recover what they have paid. For the reasons given by your Lordship in the chair I am of the view that their averments are not such as to show that it would be inequitable for the pursuers to recover. Accordingly, I agree that the reclaiming motion should be allowed by recalling the interlocutor of the Lord Ordinary and granting decree de planofor the sum sued for and that the case should be remitted to the Outer House for further consideration by the Lord Ordinary in regard to the matter of interest on the sum sued for.

LORD KIRKWOOD —I am in full agreement with the opinion of your Lordship in the chair and I have nothing to add.