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Restitution—Mistake of Law—Reform in Haste, Repent at Leisure

In Kleinwort Benson v. Lincoln City Council [1998] 3 W.L.R. 1095 the House of Lords heard consolidated appeals arising out of the failure of interest rate swap transactions entered into between various banks and local authorities. Having paid out considerable sums under the swap arrangements, the banks were disconcerted to find them declared ultra vires and void (Hazell v. Hammersmith and Fulham L.B.C. [1992] 2 A.C. 1). The Lords have now held that sums paid by the banks may be recovered back, by action in restitution for mistake. In so holding, they have abrogated the rule that a mistake of law is not actionable, and denied (at least on these facts) any defence that the parties acted on the basis of “settled law”.