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BCL Law Notes Restitution of Unjust Enrichment BCL Notes

Pitt V. Holt Sc Notes

Updated Pitt V. Holt Sc Notes

Restitution of Unjust Enrichment BCL Notes

Restitution of Unjust Enrichment BCL

Approximately 620 pages

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Pitt v. Holt (Supreme Court)

Facts

The claim was made by the personal representatives of Mr Derek Pitt, who died in 2007 aged 74. In 1990 he had suffered very serious head injuries in a road traffic accident, resulting in his mental incapacity. His wife, Mrs Patricia Pitt, was appointed as his receiver under the Mental Health Act 1983, and on his death she became one of his personal representatives, and the only beneficiary interested in his estate. Mr Pitt’s claim for damages for his injuries was compromised by a structured settlement, approved by the court, in the sum of 1.2m. Mrs Pitt’s solicitors sought advice from Frenkel Topping, a firm of financial advisers said to have specialist experience of structured settlements. They advised that the damages should be settled in a discretionary settlement, and this was done, with the authority of the Court of Protection, in 1994. The trust was referred to as the Derek Pitt Special Needs Trust (“the SNT”).

Frenkel Topping gave their advice in a written report to Mrs Pitt (as receiver) which was made available to the Official Solicitor, who represented her husband in the application to the Court of Protection. The report referred to various advantages which the SNT was expected to secure, and it mentioned income tax and capital gains tax in its illustrative forecasts. But the report made no reference whatsoever to inheritance tax.

The SNT could have been established without any immediate inheritance tax liability if (i) it had been an interest in possession trust or (ii) it had been a discretionary trust complying with section 89 of the Inheritance Tax Act 1984. In order to comply with section 89 its terms should have provided that at least half of the settled property applied during Mr Pitt’s lifetime was applied for his benefit. But the SNT as drafted and executed contained no such restriction. The consequence was an immediate liability to inheritance tax of the order of 100,000, with the prospect of a further tax charge on the tenth anniversary in 2004. The deputy judge (Mr Robert Englehart QC) observed that by 2010 the total tax, together with interest and penalties (if exacted) must have amounted to between 200,000 and 300,000.

Mrs Pitt and her advisers became aware of the inheritance tax liabilities in 2003. In 2006 Mr Pitt (by a litigation friend) and the trustees of the SNT commenced proceedings against Frenkel Topping claiming damages for professional negligence. Mr Pitt died in 2007. After taking further advice his personal representatives (who were also two of the trustees of the SNT) commenced proceedings seeking to have the SNT set aside either under the Hastings-Bass rule, or on the ground of mistake.

Holding

Lord Walker

Causative Ignorance and Mistake

For present purposes a mistake must be distinguished from mere ignorance or inadvertence, and also from what scholars in the field of unjust enrichment refer to as misprediction. Forgetfulness, inadvertence or ignorance is not, as such, a mistake, but it can lead to a false belief or assumption which the law will recognise as a mistake.

The fullest academic treatment of this topic is in Goff & Jones at paras 9-32 to 9-42. The editors distinguish between incorrect conscious beliefs, incorrect tacit assumptions, and true cases of mere causative ignorance (“causative” in the sense that but for his ignorance the person in question would not have acted as he did). The deputy judge’s first-instance decision in Pitt [2010] 1 WLR 1190, para 50 is suggested as an example of mere causative ignorance: “If someone does not apply his mind to a point at all, it is difficult to say that there has been some real mistake about it”. The Court of Appeal adopted a different view of the facts, treating the case (para 216) as one of an incorrect conscious belief on the part of Mrs Pitt that the SNT had no adverse tax consequences. The editors of Goff & Jones are, on balance, in favour of treating mere causative ignorance as sufficient. They comment (at para 9-41, in answering a “floodgates” objection):

“. . . denying relief for mere causative ignorance produces a boundary line which may be difficult to draw in practice, and which is susceptible to judicial manipulation, according to whether it is felt that relief should be afforded – with the court’s finding or declining to find incorrect conscious beliefs or tacit assumptions according to the court’s perception of the merits of the claim.”

It may indeed be difficult to draw the line between mere causative ignorance and a mistaken conscious belief or a mistaken tacit assumption. I would hold that mere ignorance, even if causative, is insufficient, but that the court, in carrying out its task of finding the facts, should not shrink from drawing the inference of conscious belief or tacit assumption when there is evidence to support such an inference.

Unilateral Mistake is Sufficient

Nor need the mistake be known to (still less induced by) the person or persons taking a benefit under the disposition. The fact that a unilateral mistake is sufficient (without the additional ingredient of misrepresentation or fraud) to make a gift voidable has been attributed to gifts being outside the law’s special concern for the sanctity of contracts.

Conversely, the fact that a purely unilateral mistake may be sufficient to found relief is arguably a good reason for the court to apply a more stringent test as to the seriousness of the mistake before granting relief.

Nature of the Mistake

Citing Millet J in Gibbons v. Mitchell:

“In my judgment, these cases show that, wherever there is a voluntary transaction by which one party intends to confer a bounty on another, the deed will be set aside if the court is satisfied that the disponor did not intend the transaction to have the effect which it did. It will be set aside for mistake whether the mistake is a mistake of law or a fact, so long as the mistake is as to the effect of the transaction itself and not...

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