Elston v King & Anor

A contract may be set aside for common mistake of law only where the parties shared a common assumption as to an existing state of affairs and the mistake satisfies the requirements in [2002] EWCA Civ 1407, including that performance is rendered impossible. A compromise agreement is subject to the same rules, but its construction must account for the dispute settled and any express or implied allocation of the risk of legal change. Parties who settle on the basis of competing assessments of an uncertain legal issue make a misprediction, not a common mistake. A later appellate decision correcting an earlier first-instance decision does not, by itself, establish a common mistake capable of undoing the compromise.

The appellant had been made bankrupt and entered into an income payments agreement with his trustees in bankruptcy under section 310A of the Insolvency Act 1986. He later sought restitution of payments made under the agreement, arguing that it had been concluded under a common mistake of law concerning the court’s jurisdiction to make an income payments order in respect of pension rights.

The County Court at Lincoln dismissed the claim. It held that the agreement was valid, constituted a compromise, remained capable of performance, and could not be set aside under the common-mistake principles in [2002] EWCA Civ 1407. The appellant appealed against the legal conclusions, while leaving the factual findings unchallenged. The central issue was whether the parties had made a common mistake or had instead assessed the likely outcome of an uncertain legal dispute.

1. Appeal dismissed. The Income Payments Agreement was a contract. Payments made under a valid contract could not be recovered in unjust enrichment unless the contract was first set aside.
2. The agreement was an income payments agreement under section 310A of the Insolvency Act 1986, and therefore a statutory contract subject to statutory controls. The court agreed with the analysis in Booth v Mond, [2010] EWHC 1576 (Ch).
3. The principles in Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd, [2002] EWCA Civ 1407, applied to mistakes of law as well as mistakes of fact. The requirements included a common assumption, absence of warranty, absence of fault, impossibility of performance, and a state of affairs sufficiently fundamental to the contractual venture.
4. The agreement was a compromise. The trustees had threatened an application for an income payments order, and the appellant agreed to make payments in return for that application not being pursued. The absence of a greater element of give-and-take did not prevent the agreement from being a compromise; the decision in Huddersfield Banking Co Ltd v Henry Lister & Son Ltd, [1895] 2 Ch 273, was distinguishable.
5. There was no common assumption about the court’s jurisdiction. Both parties knew that Raithatha v Williamson, [2012] 1 WLR 3559, was a first-instance decision on a novel point, and each assessed the likely result of future litigation. That was a prediction about future legal events, not a shared mistake about an existing state of affairs. The later decision in Horton v Henry, [2016] EWCA Civ 989, did not alter that analysis.
6. The agreement was also capable of performance and was not radically different from the agreement the parties made. The alternative impossibility analysis supported by Kyle Bay Ltd v Underwriters Subscribing, [2007] EWCA Civ 57, did not assist the appellant.
7. It was unnecessary to decide the contingent change-of-position defence.

• County Court at Lincoln: Her Honour Judge George dismissed the appellant’s claim in a judgment dated 8 December 2017 and order dated 15 January 2018.
• High Court (Chancery Division): The appeal was dismissed by Marcus Smith J.