Nepean Hydro Electric Commission v. Ontario Hydro

Nepean Hydro Electric Commission v. Ontario Hydro
Collection
Supreme Court Judgments
Date
1982-03-02
Report
[1982] 1 SCR 347
Case number
16043
Judges
Laskin, Bora; Martland, Ronald; Dickson, Robert George Brian; Estey, Willard Zebedee; Lamer, Antonio
On appeal from
Ontario
Subjects
Action
Decision Content
Supreme Court of Canada
Nepean Hydro Electric Commission v. Ontario Hydro, [1982] 1 S.C.R. 347
Date: 1982-03-02
The Hydro Electric Commission of the Township of Nepean (Plaintiff) Appellant;
and
Ontario Hydro (Defendant) Respondent.
File No.: 16043.
1981: April 1 and 2; 1982: March 2.
Present: Laskin C.J. and Martland, Dickson, Estey and Lamer JJ.
ON APPEAL FROM THE COURT OF APPEAL FOR ONTARIO.
Restitution—Mistake of law—Money had and received because of mistaken belief as to law—Refund sought—Whether or not monies recoverable—The Power Corporation Act, R.S.O. 1970, c. 354, ss. 7, 39, 58, 76, 82.
Respondent collected $921,463 from power bills that were not ‘lawful’ in that the demand for payment was not authorized by the Act governing respondent’s operations. No legal, moral or other obligation to make the payments existed; respondent exacted them and appellant paid them by mistake. The Ontario Court of Appeal upheld the trial judge’s dismissal of appellant’s action to recover the payments and respondent’s counterclaim for amounts not paid by the appellant. The legal concepts of ‘mistake of law’ were central to those decisions.
Held (Laskin C.J. and Dickson J. dissenting): The appeal should be dismissed.
Per Martland, Estey and Lamer JJ.: The law of mutual mistake applies. The circumstance is one of unauthorized acts and of mutual mistake with respect to them. Any exception to the general rule barring recovery of moneys paid in an illegal transaction when the parties are not in pari delicto does not apply because neither party has committed a delict and no wrongful conduct in the sense of actions contrary to statutes or public policy has taken place. Duress was not involved. Appellant cannot recover under the principles enunciated in Kiriri. The Act here was not passed for appellant’s benefit; nor did it impose more duty on the respondent than on the appellant; nor did it impose a duty on respondent “for the protection of the appellant. None of the authorities indicated any basis for the merging of the principles applicable to mistake of fact and mistake of law, and the need for certainty in commerce and in public transactions demanded that that ancient distinction be maintained.
As neither appellant nor respondent had authority to “accumulate” surplus assets, the concept of unjust enrichment was not easily associated with their relationship.
Per Laskin C.J. and Dickson J., dissenting: Where money is paid under a mistake and there is no ground to claim it in conscience, the party may recover it back. The unfortunate doctrine that monies paid under a mistake of law are not recoverable should not be perpetuated. Exceptions have eroded the doctrine to the point of making the distinction between mistake of fact and of law useless, and rather than further emasculating the rule with yet another exception, the two “types” of mistake should be put on the same footing. The reason for the rule against recovery of monies paid under a mistake of law, namely, stability of contractual relations, has insufficient force to justify the rule. Money should be returned if, on general principles of equity, it would be unjust to retain it. In this case honesty and common justice require that the defendant repay the plaintiff.
[Kiriri Cotton Co. Ltd. v. Dewani, [1960] A.C. 192; Green v. Portsmouth Stadium, Ltd., [1953] 2 All E.R. 102; Hastelow v. Jackson (1828), 8 B.&c. 221; Smith v. Bromley (1760), 2 Doug. 696; 99 E.R. 441; Browning v. Morris (1778), 2 Cowp. 790; 98 E.R. 1364; Lowry and Another v. Bourdieu (1780), 2 Doug. 468; 99 E.R. 299; Moses v. Macferlan (1760), 2 Burr. 1005; 97 E.R. 676; Bilbie v. Lumley and Others (1802), 2 East 469; 102 E.R. 448, Langton and Others v. Hughes and Another (1813), 1 M.&S. 593; 105 E.R. 222; Brisbane v. Dacres (1813), 5 Taunt. 143; 128 E.R. 641; Rural Municipality of Storthoaks v. Mobil Oil Canada, Ltd., [1976] 2 S.C.R. 147; Eadie v. The Corporation of the Township of Brantford, [1967] S.C.R. 573; Maskell v. Horner, [1915] 3 K.B. 106; Harse v. Pearl Life Assurance Company, [1904] 1 K.B. 558, considered; Kelly v. Solari (1841), 9 M. & W. 54; The Dominion Bank v. The Union Bank of Canada (1908), 40 S.C.R. 366; Knutson v. The Bourkes Syndicate and Others, [1941] S.C.R. 419; The Municipality of the City and County of St. John et al. v. Fraser‑Brace Overseas Corporation, et al., [1958] S.C.R. 263, referred to. APPEAL from and notice to vary (cross appeal) a judgment of the Ontario Court of Appeal (1980), 27 O.R. (2d) 320, 107 D.L.R. (3d) 257, dismissing an appeal and cross-appeal from a judgment of Craig J. dismissing appellant’s action for the return of money paid and respondent’s counterclaim for further charges. Appeal and notice to vary (cross-appeal) dismissed, Laskin C.J. and Dickson J. dissenting.
D.K. Laidlaw, Q.C., and R.J. McComb, for the appellant.
R.F. Wilson, Q.C., and Peter D. Lauwers, for the respondent.
The reasons of Laskin C.J. and Dickson J. were delivered by
DICKSON J. (dissenting)—Ontario Hydro collected $921,463 from The Hydro Electric Commission of the Township of Nepean (“Nepean”) under power bills which the trial judge found were not “lawful”; the demand for payment was not authorized by the Act governing the operations of Ontario Hydro. Nepean was under no legal, moral or other obligation to make the payments. The Ontario Court of Appeal agreed. The members of this Court hold the same view. Ontario Hydro exacted the payments by mistake and Nepean paid by mistake. Nepean wants its money back. It would seem to be a simple case. To the layman, the issue would be a clear one. Nepean should succeed. Good conscience and plain honesty would require Hydro to repay. To the lawyer trying to follow confused and contradictory authority the matter is not that simple. Two courts, applying what they conceive to be the law, have denied Nepean recovery. And now the issue is before this Court, by leave.
Nepean has been buying power from Ontario Hydro since 1964. From 1966 to 1973, Nepean paid the said sums totalling $921,463 to Ontario Hydro. Nepean thought the bills were properly authorized but in 1974 realized this might not be the case. In 1974 Nepean alleged that these sums were not a ‘cost’ which Ontario Hydro could pass on to its customers within the meaning of The Power Corporation Act of Ontario, R.S.O. 1970, c. 354, as amended. Nepean brought an action for recovery of the sums paid. In turn, Ontario Hydro brought a counterclaim, seeking payment of certain sums totalling $359,512 alleged owing by Nepean for the period 1974 to 1978.
I
The background to the case is complex. The capital works funding of Ontario Hydro is obtained through borrowing. The borrowing was financed initially through payments by user municipalities to a ‘sinking fund’. Explicit statutory authority for payments to the sinking fund was contained in s. 76 of The Power Corporation Act. The price payable for power by any municipal corporation included:
(c) an annual sum sufficient to form in forty years, with interest at 4 per cent per year, a sinking fund for the repayment of the advances made by the Province of Ontario under this Act for the cost of the works, for the repayment of any other indebtedness incurred or assumed by the Corporation in respect of the cost of the works, and for the restoration of any reserve or other funds of the Corporation utilized for the payment of the cost of the works;…
By the 1950’s, the original user municipalities had made sinking fund contributions for the forty years contemplated by this section. Ontario Hydro felt that some mechanism should be available to recognize the fact that these utilities had fulfilled their sinking fund obligations. This was achieved by recognizing a notional ‘equity’ that the subscribers had obtained in the assets of Ontario Hydro, and showed up in billings as a credit called ‘matured sinking fund’.
Nepean bought into the system in 1964, at which time the ‘matured sinking fund’ provision was still in effect. Before 1966, the sinking fund relief was calculated on the basis of the original cost of fixed assets in service. In 1965, it was thought that debt retirement, and consequently any relief from debt retirement, should be based not on assets in service but rather on actual debt outstanding at the time. Under this new plan, debt retirement charges would be related to present debt, and would be charged to subscribers proportionately to load.
At the same time, however, Ontario Hydro continued to believe that some recognition should be given to those utilities which had contributed to the sinking fund for many years. In 1966, the amount of these contributions totalled more than $500 million. Ontario Hydro decided that these past contributions could best be recognized through a payment called ‘return on equity’. The return on equity was calculated as 4 per cent of a municipality’s previous payments into the sinking fund. This meant an annual payout of 4 per cent of $500 million, or approximately $20 million in 1966.
This ‘return on equity’ had to be financed. The method chosen was to levy a charge called ‘cost of return’. This charge was based on the amount of load used by a subscriber.
The trial judge, Mr. Justice Craig, described the result in these words:
…Ontario Hydro did not gain or lose by these computations. It was not a cost incurred; but the effect on individual municipalities or their utilities varied greatly because the older and larger municipalities or utilities that had acquired a large “equity” in the system received a greater return than their share of the “cost of return”; whereas the newer fast-growing municipalities or utilities, like Nepean, with a small “equity” and rising power demands, were charged more for the “cost of return” than they received from the “return on equity” [(1978), 22 O.R. (2d) 137, at p. 143]. At trial there was some discussion about the support given to proposed changes by the Ontario Municipal Electrical Association (OMEA), an association composed of the municipal and utility customers of Ontario Hydro. Nepean was a member of the Association. Ontario Hydro did not claim that OMEA was agent for Nepean or that it had authority to bind Nepean in any way.
Following the introduction of the system and until the year 1973 Nepean had paid to Ontario Hydro a net amount of $921,463; that is the difference between the “cost of return” paid by Nepean in the total amount of $1,360,311 and the amount credited as “return on equity” during that period, namely, $438,848.
II
At trial, Mr. Justice Craig dismissed both the claim of Nepean and the counterclaim of Ontario Hydro. He held that the charge of a ‘cost of return’ on equity was not authorized by s. 76 of The Power Corporation Act, the basic statutory authority dealing specifically with the cost of power to municipalities and their utilities. Section 76 provides that the price payable for power by any municipal corporation is the “cost to the corporation… of supplying and delivering power to the municipal corporation, including the municipal corporation’s proportion” of the cost of operation, maintenance, depreciation, insurance, administration interest, expenses of debt service and contributions to the sinking fund to which I have earlier referred. Mr. Justice Craig held:
In my opinion, for the reasons hereinafter stated, the individual municipalities or their utilities did not acquire an “equity” in the plant or works of Ontario Hydro outlined in s. 76(c); but even if they did acquire any “equity” it would be vague and uncertain; and would not give rise to any rights of any kind unless Ontario Hydro stopped its operations completely. In particular Ontario Hydro would not be authorized to pay a return on any such alleged “equity” to be charged against other municipalities or their utilities [supra, at p. 145]. Later, he said:
It is admitted by Ontario Hydro that there is not any contractual or statutory obligation upon Ontario Hydro to levy a cost of “return of equity”; and no contractual or statutory right on any municipality or utility to a “return on equity”. The evidence tendered by Ontario Hydro indicated that the system “return on equity”/“cost of return” was based on a concept (rather than a reality that municipalities or their utilities had acquired an equity in the facilities of Ontario Hydro); and the witness Knowty for Ontario Hydro acknowledged that it was an adjustment between municipalities to recognize that one had been in the system longer than another—and that it was a matter of “fairness” between municipalities [supra, at pp. 146-47].
Mr. Justice Craig concluded that Ontario Hydro was not empowered or authorized to charge for the cost of return on equity because it was not a cost of supplying and delivering power under s. 76 and not otherwise authorized under any other section such as s. 7(3) and (4), s. 58 or s. 82. The trial judge dealt with these latter sections in the following manner:
As to section 7(3)(a), for the reasons stated earlier, charging for a “return on equity” is not an “expenditure” related to the cost of power; and in any event it is not one for which Ontario Hydro “has had other proper authority”; under section 7(3)(b) it is not an “expenditure” in connection with the generating, distribution or supply of power…”; under s. 7(4) it does not come within “expenses”.
With reference to s. 58, this section is in the nature of a basket clause; and in my opinion charging for a “return in equity” resulting in off-setting debits and credits does not involve “the generation, transmission, distribution, supply, sale and use of power…”. In my view s. 58 is not intended to apply to billings to municipalities and utilities which are specifically dealt with by s. 76.
Turning now to s. 82, it is my opinion that the three subsections deal with adjustments of only those amounts that are properly payable by municipalities or utilities under ss. 76 to 81. (For the purpose of this case ss. 77 to 81 are of no significance) [supra, at p. 149]. Hydro, a creature of statute, must find authority for any rights which it seeks to exercise in its governing statute. The right here sought to be exercised was conspicuously missing from that statute.
Mr. Justice Craig held that Nepean had made payments under mistake of law and was therefore not aware of its rights. The payments of $921,463 were made to Ontario Hydro under mistake of law on the part of both Nepean and Ontario Hydro; that is, a mistake in the interpretation of The Power Corporation Act. Estoppel had been pleaded but counsel for Ontario Hydro did not present any argument that this doctrine would have any application to the case, as Nepean did not make any representation of fact.
Nepean sought to recover on the basis, firstly, that the money was not paid voluntarily but rather under compulsion or practical compulsion; and, secondly, that Ontario Hydro had the duty and obligation to administer The Power Corporation Act and was therefore primarily responsible for the mistake and accordingly Nepean and Ontario Hydro were not in pari delicto. Mr. Justice Craig held that the payments were voluntary in a legal sense and therefore the claim for return of the money on the ground of compulsion or practical compulsion failed. On what may loosely be referred to as the in pari delicto point the judge held that Ontario Hydro was responsible for the proper application and interpretation of s. 76 of The Power Corporation Act; Ontario Hydro had the primary obligation and responsibility to observe the requirements of The Power Corporation Act; and particularly of knowing what charges can be imposed upon municipalities and their utilities; it had the burden of administration of the Act. It was understandable, in the first instance at least, that Nepean would assume that Ontario Hydro was not acting without authority. In the result the judge held that the parties were not in pari delicto in that the primary responsibility for the mistake was upon Ontario Hydro; and Ontario Hydro had innocently and mistakenly misled Nepean into thinking that these charges were properly authorized.
Nepean was, however, denied recovery on the claim for money “had and received to the use of the plaintiff for the reason that Ontario Hydro did not receive any benefit or beneficial interest of any kind, from the ‘return of equity/cost of return’ payments. While Hydro received the payments from Nepean they were credited to other municipalities or their utilities in the form of lower power bills. The alternative basis for liability—unjust enrichment or restitution—failed, in the opinion of the judge, for three reasons: (i) Ontario Hydro did not receive a benefit; (ii) Ontario Hydro would be unable to recover the amount of any judgment from the municipalities or utilities who received benefits from the overpayment by Nepean; (iii) Nepean had ample opportunity to investigate its legal rights and take legal advice in the first year or two of the system, rather than waiting eight years. I shall have more to say about these matters later in the judgment.
On appeal, MacKinnon A.C.J.O., speaking for the Court of Appeal of Ontario, in a short oral judgment, held that Mr. Justice Craig had correctly interpreted The Power Corporation Act in denying Ontario Hydro power and authority to make the impugned charges of $921,463. The Court agreed that the payments made under mutual mistake of law were not made under the compulsion of urgent or present necessity or under ‘practical compulsion’ so as to permit recovery of the monies. Finally, the court held that (i) assuming, without deciding, that the trial judge was correct in his conclusion that the parties were not in pari delicto and (ii) accepting for the purpose of argument that the principles applicable for an order for the recovery of monies paid under a mistake of law are the same as those applicable for an order for the recovery of monies paid under a mistake of fact once it is established that the parties were not in pari delicto, the court could not say that the trial judge erred in concluding it would be ‘inequitable’ to order Ontario Hydro to repay the monies paid to it under the mistake of law.
III
I turn first to the authority of Ontario Hydro to charge for ‘cost of return’. I may say that I am in agreement with Mr. Justice Craig and the Ontario Court of Appeal that the payments for ‘cost of return’ made by Nepean were not authorized under the Act. I find the reasoning of Mr. Justice Craig on this point compelling. The Act entitled Ontario Hydro to charge for the cost of supplying and delivering power to its subscribers. The ‘cost of return’ was not a cost incurred by Ontario Hydro in connection with the delivery and supply of power. Rather, it was a levy designed to recognize payments which had been made in the past by certain municipalities. The whole return/cost system was based on a fiction. It involved Ontario Hydro playing the role of a corporate Robin Hood, taking from certain users and giving to others. As counsel for Nepean submits in his factum, the cost of supplying power would be identical, regardless of whether the charges for ‘cost of return’ were levied or not.
As Mr. Justice Craig pointed out, there is no statutory basis for the position of Ontario Hydro. The whole concept of certain utilities building up ‘equity’ in the assets of Ontario Hydro is a concept created by Ontario Hydro in its attempt to be ‘fair’ to certain users. The statute gives Ontario Hydro certain limited rights. These rights enable it to charge for the cost of supplying power. Ontario Hydro cannot, however, take from one user and give to another because it sees this as ‘fair’. Redistributive schemes are not within its authority.
In my opinion, therefore, the appeal falls to be decided on the basis that Ontario Hydro did not have legal authority to levy charges for ‘cost of return’ from its subscribers. It was alleged at trial and on appeal that the money paid by Nepean was paid under a mistake of law. It is often said that money paid under a mistake of law is not recoverable. Indeed, Mr. Justice Craig makes this statement in his judgment and regards it as so self-evident that he does not even cite authority to support it. I would now like to address that point.
IV
The immediate difficulty one faces in any discussion of mistake of law is that to which Professor Winfield has referred (“Mistake of Law” (1943), 59 L.Q.R. 327) namely, when we ask what is the distinction between “law” and “fact” no exact answer is discoverable in the law reports. “The reason for this is that the intrinsic difficulty of laying down any hard and fast line separating the two ideas is so great as to make the task a practical impossibility” (at p. 327). As Roland Champness has noted in his work Mistake in the Law of Contract (1933), the statement often made that relief is given against mistake of fact but not against mistake of law is not completely correct in either of its propositions, adding at pp. 8-9:
Thus Stirling, J., in the case of Allcard v. Walker, (1896) 2 Ch. 369, at p. 381, is reported as having said: “It is not accurate to say that relief can never be given in respect of a mistake of law. It was laid down by Turner, L.J., in Stone v. Godfrey (1854), 5 D.M. & G. 76, at p. 90, that this Court [the Chancery Division] has power to relieve against mistakes of law as well as against mistakes in fact, and this statement was recognised in the judgments of the members of the Court of Appeal in Rogers v. Ingham (1876), 3 Ch. D. 351, and particularly by Mellish, L.J. (at p. 357), who refers to it and explains it in the following phrase: That is to say, if there is any equitable ground which makes it, under the particular facts of the case, inequitable that the party who received the money should retain it.’ “
The distinction between a mistake of law and a mistake of fact in contract law is commonly regarded as having been made in the case of Bilbie v. Lumley and Others (1802), 2 East 469; 102 E.R. 448 by Lord Ellenborough C.J. when, over- turning a line of precedents running back two hundred years, he said at p. 472:
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. In Lowrie [sic] v. Bourdieu, money paid under a mere mistake of law (was endeavoured to be recovered back), and there Buller J. observed that ignorantia juris non excusat, &c.
There is a rule of law that in certain cases ignorance of law excuses no one; but there is no presumption that every one knows the law. The maxim ignorantia juris non excusat, &c. has no relevance to the case of a man seeking to recover back money paid by him in misapprehension of his legal rights, although it has often been so cited and misapplied. The “hasty and ill-considered utterance of Lord Ellenborough” as it was termed by Lord Wright (Legal Essays and Addresses, Preface xix (1939)), however, quickly crystallized into the rule that money paid under a mistake of law may not be recovered, whereas an action lies for the recovery of money paid under a mistake of fact.
Nine years after Bilbie v. Lumley, Lord Ellen-borough did not hesitate to hold (Perrott and Others v. Perrott (1811), 14 East 423; 104 E.R. 665) that a deed cancelled under mistake as to the legal effect of a will was not to be regarded as cancelled. “And when once”, said he at p. 440, “it is established, as it clearly is, that a mistake in point of fact may also destroy it, it seems difficult upon principle to say that a mistake in point of law, clearly evidenced by what occurs at the time of cancelling should not have the same operation”. This correct statement of law seems to have been overlooked by later authorities and Lord Ellen-borough’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” (note, (1931) 45 Harv. L. Rev. 336, at p. 337). As Professor Williston has observed, the rule distinguishing mistake of law from mistake of fact is founded on no sound principle (Williston on Contracts (3rd ed.), vol. 13, para. 1581, at p. 536).
Professor Foulke writing in (1911), 11 Columb. L.R. 299 had this to say at p. 320:
The distinction between mistake of law and mistake of fact originated in the year 1802, in the notion that the maxim that everyone is presumed to know the law is of general application, and the distinction is still generally observed by the courts. Although some of the greatest lawyers have studied the matter attentively, no one of them has been able either to draw the distinction between a mistake of fact and a mistake of law, or to discover the principle upon which relief will be withheld in case of mistake of law. There are, therefore, good reasons for disregarding the distinction as a mere notion originating in a dictum incomprehensible to the greatest minds, having no support in reason, producing hopeless confusion, and incapable of practical application. It has therefore been assumed in the discussion that there is no reason, at least so far as the law of contract is concerned, for distinguishing between a mistake of law and a mistake of fact.
Until the decision in Bilbie v. Lumley, no distinction had been made between mistake of fact and mistake of law and money paid under a mistake of law was recoverable both in law and in equity (Restatement of the Law of Restitution (1937), “Introductory Note”, at p. 179). The popularity of Lord Ellenborough’s distinction was no doubt due in part to its coincidence with the beginning of a “period of rigidity in contract law” as Professor Waddams has called it, which also saw the suppression of the law of restitution, (Waddams, The Law of Contracts (1977), at p. 213). “The notion of absolute sanctity of contract cannot live with a flexible system of granting relief against unjust enrichment, for the two sets of principles come too often into conflict” (ibid.) Having become firmly enrooted during the course of the nineteenth century as an immutable rule of the common law of contract, it has continued to flourish and sow confusion in this century. The English courts have been loathe to disturb the rule itself, all the while weaving a complicated web of exceptions and qualifications. Although some commentators have postulated that the very tenacity of the rule is sufficient proof of its reasonableness, others have commented that the distinction between mistake of law and mistake of fact has been used as a substitute for adequate analysis of a problem (see Palmer, The Law of Restitution (1978), vol. III, para. 14.27, at p. 338). It is, as Corbin has termed it, a “handy rule”. “When a court is convinced that restitution should not be decreed, in the pressure of work it is likely to seize upon the first plausible rule that comes handy; and the reader surely well knows how handy the ‘mistake of law’ rule has become” (Corbin on Contracts (1960), vol. 3, para. 617, at p. 756).
Legal writers and jurists have roundly condemned the rule. Cheshire (Cheshire and Fifoot’s Law of Contract (1976), 9th ed.) would appear to uphold the distinction in a passage at p. 641 but in the paragraph immediately following at pp. 641-42 we read:
But while, upon the weight and length of authority, the distinction, it is feared, must still be maintained, the exact demarcation between fact and law has never been determined. All that can be done in the present context is to indicate, by a citation of opposing instances, the considerations present to the minds of judges when they seek to make the distinction. A mistake as to the particular transaction for which or as to the particular individual to whom the money is paid is clearly one of fact.
As I have noted, Lord Ellenborough rested his distinction as to a mistake of law and a mistake of fact upon the maxim ignorantia juris non excusat. The maxim is a statement of the general applicability of rules of law and operates to preclude individuals from seeking to excuse themselves from criminal or other liability. Lord Ellenborough imported into the law of contract a maxim of criminal or public law. As Lord Wright has written, one cannot escape the application of a rule of law by pleading ignorance of it, adding:
Lord Ellenborough, however, stated as a dogma that every man must be taken to be cognizant of the law. Whatever force may be given to this in criminal law, it is clearly not true as a general proposition. It is not only against principle and early authority but against common sense, and has been consistently disavowed by great judges, though often repeated by some who should have known better. The result has been a great confusion in the law relating to transfers by mistake of law, so that the actual position in England would be difficult precisely to define [Legal Essays and Addresses (1939), at p. 43].
That the maxim has no place in civil actions was stated in Lansdown v. Lansdown (1730), Mos. 364, at p. 365; J. & W. 205: “That maxim of law, Ignorantia juris non excusat, was in regard to the public, that ignorance cannot be pleaded in excuse of crimes, but did not hold in civil cases”.
The courts will not enforce illegal contracts. A person with knowledge of the facts who has paid money under an illegal contract cannot recover it (Langton and Others v. Hughes and Another (1813), 1 M.&S. 593; 105 E.R. 222); an obvious rule of public policy. Relief is given however where an innocent party seeks to redress a bargain which is in fact prohibited by statute. The maxim ignorantia juris non excusat would preclude recovery, participation in the transaction being conduct that the legislator has decided must be discouraged, if not sanctioned. The injustice which would often result is at times tempered by application of the doctrine of in pari delicto.
There is a distinction to be drawn between illegal contracts and contracts entered into under mistake of law. The public policy issues are not the same and the application of an essentially punitive maxim should not preclude the court from giving redress. In the case of contracts entered into under mistake of law: “Rather than trying to escape the consequences of a rule of law, the plaintiff is seeking to escape consequences that would not have occurred had the law been known and observed. In a general sense it can be said that he seeks to bring the situation into conformity with the rule of law, by asserting rights based upon it” (Palmer, The Law of Restitution (1978), vol. III, para. 14.27, at p. 340). Thus the maxim ignorantia juris non excusat cannot serve as the foundation for the rule barring recovery.
The modern justification for the existence of the rule against recovery of monies paid under a mistake of law has been the stability of contractual relations. The rule though is often used as a handy means of disposing of cases where, in fact, recovery of money should be barred, and would be, under a more searching analysis of the case.
The adoption of the rule at the beginning of the nineteenth century occurred at a time when the spirit of the law was becoming opposed “to such idealistic formulations as ‘aequum et bonum’” (Anson’s Law of Contract, 25th ed. (1979), at p. 646). This change in spirit was nourished by the prevailing philosophical, political and economic ideologies of the nineteenth century, the premise being that partners to a contract are enlightened individuals exercising discrimination and free will and courts should not disturb their contractual relations. Stability of contractual relations resulted from this policy of judicial non-interference; stability of contractual relations then became the justification for judicial non-interference. “The attempt in the last century and a half to establish the sanctity of contracts as an absolute value has led to the suppression of open recognition of relief for mistake” (Waddams, The Law of Contracts (1977), at p. 212). The reasoning of Mellish L.J. in Rogers v. Ingham (1876), 3 Ch. D. 351 (C.A.) is representative of this trend in contract law; see also Re Saxon Life Assurance Society (1862), 2 J. & H. 408; 70 E.R. 1117.
The principle of sanctity of contract implies the assumption of risk by the parties of the consequences of contracting, again an implication perfectly consonant with the supremacy of free will and enlightened self-interest. But, as Professor Waddams points out at pp. 213-14:
…an examination of the cases shows that, as with unconscionability, so with mistake, contract values are not absolute and must be weighed against other considerations.
...
Everyone is against unjust enrichment, just as we are all in favour of enforcement of valid contracts. If the contract is enforceable, then the enrichment cannot be unjust. But if the enrichment is unjust then the contract must be unenforceable. The circle is inextricable. Unjust enrichment is no formula for easy solutions. But it does, it is suggested, provide a useful framework in which to strike the necessary balance.
Certainty in contractual relations cannot be the sole and overriding principle guiding the courts. As has been pointed out by innumerable authors and judges:
It is clear that any civilized system of law is bound to provide remedies for cases of what has been called unjust enrichment or unjust benefit, that is to prevent a man from retaining the money of or some benefit derived from another which it is against conscience that he should keep [Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour, Limited, [1943] A.C. 32, at p. 61 per Lord Wright].
Certainty in commerce and in public transactions would seem to be better served by the non-recognition of a rule which sows confusion and which has so little to recommend it.
Although the venerability of the distinction between mistake of fact and mistake of law is often paid lip service, legal commentators have for a long time been calling for its elimination and the judges have been eroding its force by means of numerous exceptions and qualifications. Corbin states emphatically that its “time has come”:
In spite of the many decisions and dicta pro and con—indeed, because of them, it is believed that the time has come to say that the exceptions now make the rule, that social policy requires that mistake of law and mistake of fact be treated alike, and that in granting relief for mistake the attention of the court should be directed to the other factors in the case [Corbin on Contracts (1960), vol. 3, para. 616, at p. 752].
Palmer calls the distinction “unfortunate” and believes “the law of mistake could be administered more justly without it” (The Law of Restitution (1978), vol. Ill, para. 16.4, at p. 467). These are American authorities. Goff and Jones, however, in their major British text, also would eliminate the distinction between mistake of law and mistake of fact, with one exception:
In our view the principle in Bilbie v. Lumley should only preclude recovery of money which was paid in settlement of an honest claim. Any other payment made under a mistake of law should be recoverable if it would have been recoverable had the mistake been one of fact [The Law of Restitution, 2nd ed. (1978), at p. 91].
It is true that the general rule is often expressed in terms of non-recovery. However Goff and Jones are of the view that this proposition is based on an erroneous reading of Bilbie v. Lumley. They argue, convincingly, that Bilbie v. Lumley was a case in which a payment was made in settlement of an honest claim. Payment made in these circumstances is irrecoverable, even if later events indicate that the payor was foolish to have acceded to the request for payment. However, the authors do not believe that Bilbie v. Lumley and those cases which followed, should be taken to establish the broad proposition that ail payments made under a mistake of law are prima facie irrecoverable. Goff and Jones suggest the general test, which I would adopt, that the money should be returned if, on general principles of equity, it would be unjust to allow the recipient of the benefit to retain it. In short, the question of mistake of law should be seen as just one more category in the general law of unjust enrichment. If the defendant has been unjustly enriched at the expense of the plaintiff, then he should be forced to disgorge the benefit. Goff and Jones are, in fact, espousing the adoption of the solution found in the Restatement of the Law of Restitution, para. 44.
Professor Fridman echoes the American authorities who see the distinction between mistake of law and mistake of fact as one whose time has come: This [referring to the decision in Solle v. Butcher], it is suggested, indicates how narrow and indistinct is the line between fact and law in some, if not indeed, many instances. In view of this perhaps the time has come to eradicate from the law, at least in certain circumstances, this particular distinction [The Law of Contract in Canada (1976), at p. 88].
Professors Reiter and Swan in their recent text, Studies in Contract Law, speak of the difficulties of determining what is a mistake of law and what is a mistake of fact:
The impossibility of indicating what is a mistake of law and what is a mistake of fact forces any analysis of mistake to take the same view of all mistakes—mistakes of law as well as mistakes of fact. To deny relief because the mistake is one of law is simply to say that that risk was on the party who suffered the loss. This tacit risk allocation must be justified. No general rule to provide for an allocation of such risks can be laid down as each case must be decided on its own facts and with reference to the broad range of factors that have been already mentioned (at pp. 231-32).
Various means of avoiding the application of the rule precluding recovery of money paid under mistake of law have developed, the most obvious one being to characterize the mistake as one of fact. This was the technique used in Solle v. Butcher, [1950] 1 K.B. 671 (C.A.), the “artificiality” of which Cheshire has commented on (Cheshire and Fifoot’s Law of Contract, supra, at p. 644). (See also George (Porky) Jacobs Enterprises Ltd. v. City of Regina, [1964] S.C.R. 326 per Hall J.)
Another technique has been to engraft upon an already vague distinction (that between law and fact) an equally vague distinction between “general law” and “private right”; the so-called test formulated by Lord Westbury in Cooper v. Phibbs, Cooper, and Others (1867), L.R. 2 H.L. 149. The maxim ignorantia juris non excusat it is said, and thus the rule barring recovery of money paid under mistake of law, has no application where there is a private right involved as opposed to a question of the applicability of the general law. This is undoubtedly a more correct usage of the maxim. Thus a “[p]rivate right of ownership is a matter of fact; it may be the result also of matter of law; but if parties contract under a mutual mistake and misapprehension as to their relative and respective rights, the result is, that the agreement is liable to be set aside as having proceeded upon a common mistake” (Cooper v. Phibbs, supra, at p. 170). The private rights/general law distinction is really a variation on the judicial technique of characterizing mistakes of law as mistakes of fact.
Courts have also allowed money paid under a mistake of law to be recovered where the payment is not a “voluntar