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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Nurdin & Peacock Plc v DB Ramsden & Company Ltd [1999] EWHC 275 (Ch) (05 February 1999) URL: http://www.bailii.org/ew/cases/EWHC/Ch/1999/275.html Cite as: [1999] 1 WLR 1249, [1999] WLR 1249, [1999] EWHC 275 (Ch)

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		05 February 1999

MR. JUSTICE NEUBERGER:

INTRODUCTION

This case concerns claims by Nurdin & Peacock plc ("Nurdin") against its landlord, D B Ramsden & Co Ltd ("DBR") for recovery of sums paid by way of overpayments of rent. It involves a point arising from the recent decision of the House of Lords in Kleinwort Benson Ltd -v- Lincoln City Council [1998] 3 WLR 1095.

THE FACTS

On 17th November 1990, DBR granted a lease ("the lease") of premises at Leads Road, Kingston-upon-Hull, Humberside ("the premises") to Linrock Ltd ("Linrock") for a term of 25 years from 7th November 1990 at a rent of £207,683 per annum, payable in equal quarterly instalments in advance on the first day of February, May, August and November each year. The rent was to be subject to review on an "upward only" basis to the open market-rental value of the premises on the 17th November 1995 and every 5 years thereafter. The lease contained a proviso for re-entry in common form for non-payment of rent or breach of covenant. In addition to covenants to pay the rent and outgoings, there was also a covenant on the part of Linrock to pay:

"The sum of £59,338.00 in each of years 4 and 5 of the term payable in equal instalments on the rent payment dates."

Accordingly, the total annual payment due to DBR in respect of the period from 17th November 1990 to 17th November 1993 was £207,683 per annum, the total payment due from 17th November 1993 to 17th November 1995 was £267,021 per annum (or £66,755.25 per quarter), and the total amount payable from 17th November 1995 was £207,683 per annum (or £51,920.75 per quarter), or such higher sum, if any, that was determined to be the market rental value of the premises as at 17th November 1995.

In 1994, Nurdin entered into negotiations to purchase the share capital of various companies, including Linrock. Nurdin's solicitors advised in writing that it was not wholly clear from the terms of the lease whether, with effect from the first rent review, the minimum rent would be £207,683 per annum or £267,430 per annum, and that "further details... are awaited". On 12th April 1994, Nurdin entered into a Share Purchase Agreement ("the Share Purchase Agreement") to acquire all the shares in a number of companies, including Linrock. The Share Purchase Agreement contained details of the properties owned by the various companies being acquired, and the details of the premises recorded the "current rent" as £267,430 per annum. The Share Purchase Agreement was completed on or shortly after the date it was entered into.

On 23rd December 1994, Linrock (together with the other companies whose shareholdings were acquired by Nurdin pursuant to the Share Purchase Agreement) entered into a written agreement to transfer the lease (and other property interests held by such companies) to Nurdin. Pursuant to a licence to assign granted by DBR on 18th May, the assignment of the lease to Nurdin was executed on 1st June 1995, and Nurdin became the registered proprietor of the lease at Her Majesty's Land Registry on 15th June 1995.

On 1st May 1994, DBR submitted an invoice to Linrock for the "quarterly rent" in respect of "1 May 94 - 31 July 94" in the sum of £66,755.25 plus VAT. Similar invoices were duly despatched by DBR for payments due under the lease in respect of subsequent quarters.

During 1994 and early 1995, there were disputes as to DBR's right to interest in respect of late payments, and on 24th February 1995, DBR's solicitors wrote stating that:

"Proceedings will be issued on Monday morning without fail unless our clients receive not only the sum of £78,457.41 [i.e. £66,755.25 plus VAT) but interest pursuant to the lease at the rate of 10% from 1st February to 27th February...."

Those payments of interest, which were indeed due under the terms of the lease, were then paid by Nurdin.

On 30th October 1995, DBR issued to Nurdin an invoice in substantially the same form as before, seeking the "rent for premises at 90 Leads Road, Hull" in the sum of £66,755.25 plus VAT, in respect of the period from 1st November 1995 to 31st January 1996. Nurdin paid the invoice in full. Similar invoices in substantially the same terms claiming the same amount as "rent" said to be due on 1st February, 1st May, 1st August and 1st November 1996 were sent by DBR to Nurdin. In light of the fact that there had been no steps taken to review the rent under the lease with effect from 17th November 1995, the rate of £66,755.25 per quarter, being equivalent to £267,021 per annum, was not appropriate for invoices sent after 17th November 1995. The appropriate rate would have been £207,683 per annum or £51,920.75 per quarter in respect of these invoices. Nonetheless, Nurdin paid these invoices in full, without question.

However, following an invoice from DBR dated 27th January 1997 in respect of the rent due on 1st February 1997, again said to be £66,755.25 plus VAT, Nurdin wrote to DBR, asking for an explanation as to why the rent demanded was at the rate of £66,755.25 per quarter, on the basis that "from the title deeds now passed to us it appears that the rent is £207,683 per annum i.e. £51,920.75 per quarter". This change of attitude on the part of Nurdin occurred because Mr Simon Dye, a chartered surveyor employed by Booker plc (which owns all the shares in Nurdin) had become responsible for the management of the premises. He had called for the title deeds relating of the premises to be inspected. Sometime in February he had been given a hand written internal note which stated that the documents held by Nurdin showed:

"Rent review was due 17.11.1995. No sign that anything was done. No memo with deeds. Extra rent payment £59,338 pa due for years ending 16.11.94 and 16.11.95 under original lease."

In its reply to Mr Dye's letter on behalf of Nurdin, DBR wrote on 17th February stating that with effect from 17th November 1995 "the rent was revised as £66,755.25 per quarter and this continues to the next review date on the 17th November 2000". However, as Mr Dye pointed out in his reply, there was nothing to show that the rent had been reviewed from 17th November 1995. There was then further correspondence between Mr Dye on behalf of Nurdin and representatives of DBR, culminating in a letter from Mr Dye on 8th April 1997 which ended with the statement that, unless DBR provided "documentary evidence that the rent review was agreed at that higher figure" Nurdin would start paying rent at the lower rate of £51,920.75 per quarter and would "set-off the overpayments against future rent".

This resulted in a letter of 16th April 1997 from DBR's solicitors to Nurdin giving what turns out to be an erroneous explanation as to how the rent under the lease was agreed, and contending (also erroneously) that on its true construction the lease provided that, in the absence of any review, the rent continued effectively at £66,755.25 per quarter after 17th November 1995. Mr Dye showed that letter to Nurdin's solicitors, who advised him two days later that, at least as a matter of construction, DBR's solicitors' contention was wrong, and that, in the absence of any review, the rent was effectively £51,920.75 per quarter with effect from 17th November 1995. On 24th April, Mr Dye replied to DBR's solicitors, effectively repeating what he had been advised by Nurdin's solicitors, and reaffirming his intentions expressed at the end of his letter of 8th April. The following day, an internal note within Nurdin gave an instruction to place a stop on the rent, but it appears that this stop was never implemented, or, if it was, it was subsequently revoked.

On 28th April, Mr Dye had a conversation with Mr Drew, the Accounting Controller for the Booker group plc. According to Mr Dye's note (confirmed by him in evidence) Mr Drew advised that:

"[Nurdin] should not set-off the possible overpaid rent against future rent as forfeiture of the lease may allow the landlord, a competitor, into occupation. Legal advice from [Nurdin's solicitors] is that we should continue therefore to pay the rent at the higher level and seek to resolve the dispute by negotiation or through arbitration/court proceedings."

That advice was acted on by Mr Dye. He gave instructions to the department within Nurdin responsible for payment that:

"Until this dispute is resolved the legal advice is that the rent at the higher level must continue to be paid. If we are successful a full refund can then be obtained".

Accordingly, a payment of £66,755.25 plus VAT was paid to DBR on 1st May 1997. Meanwhile on 2nd May 1997, DBR's solicitors wrote to Nurdin giving a fuller and somewhat more accurate explanation as to why the rent was £267,021 per annum, i.e. £66,755.25 per quarter, after 17th November 1995: the effect of the letter was that DBR adhered to its case on the question of construction, but argued in the alternative that it was clearly the intention of DBR and Linrock at the time the lease was executed that the rent payable from 17th November 1995, in the absence of review, should be £267,021 per annum.

On 14th May, Nurdin's solicitors wrote to DBR's solicitors explaining why the rent was £207,683 per annum, i.e. £51,920.75 per quarter, with effect from 17th November 1995, and requesting a cheque for £118,676 (representing the alleged overpayments of rent and VAT as at that date) together with interest, failing which proceedings were to be instituted. The following day, DBR's solicitors replied effectively reiterating DBR's position.

Matters could not be resolved and Nurdin issued proceedings against DBR on 12th June 1997, seeking a declaration that the annual rent payable with effect from 17th November 1995 under the lease was £207,683, and a declaration that Nurdin had overpaid rent to DBR from 17th November 1995 and were at liberty to deduct the overpayment from future rental payments. DBR denied this claim and counterclaimed against Nurdin, joining Linrock, seeking rectification of the lease.

Shortly after the issue of proceedings, Nurdin's solicitors wrote to DBR's solicitors on 25th July 1997 referring to the fact that Nurdin had received a rent demand based on the contention that the rent was £267,021 per annum. The letter continued:

"[Nurdin] will pay this sum to [DBR] without prejudice to their claim that the rent payable with effect from 17th November 1995 is £207,683.00. Obviously the overpayment will be refundable if [Nurdin] is successful at trial."

DBR's solicitors replied to that letter on 29th July 1997, simply saying in relation to the passage I have quoted "we note your comments with regard to payment of rent". Nurdin continued to pay DBR at the rate of £66,755.25 per quarter.

The parties sensibly agreed that the questions of construction and rectification raised in the proceedings should be tried as preliminary issues. At the hearing of those issues, DBR (quite rightly) conceded the question of construction and, after hearing full evidence and argument, I rejected DBR's claim for rectification on 17th July 1998.

Thereafter, I heard argument on 12/13th October on Nurdin's counterclaim for repayment of the sums it had overpaid by way of rent. After I had made available a copy of my proposed judgment in draft, but before I handed it down, the House of Lords' decision in Kleinwort was published. As I took the view that the decision would require me to alter some of the reasoning in the draft judgment, and that it might alter the outcome, it seemed to me proper that the case should be re-listed for further argument. Counsel on both sides thought that it might be helpful if the final judgment reflected my views both before and after Kleinwort, and that seems to me an appropriate course , particularly in light of the rather unusual procedural history of this case.

In addition to the existing claim that Nurdin had the right to set-off the overpayment against future rent, Nurdin by amendment now seek an order for direct repayment of the amount overpaid, together with interest.

THE OVERPAYMENTS AND THE ISSUES

In light of the fact that DBR's claim for rectification has failed and that, as a matter of construction, the rent due under the lease with effect from 17th November 1995 was £207,683 per annum, but was demanded and paid at the rate of £267,430 per annum, there is no doubt that there have been overpayments of rent. Nurdin says the first such overpayment was in respect of the rent due on 1st February 1996 (and does not allege that there was any overpayment in respect of any previous instalment of rent). The evidence shows that that overpayment, and the overpayments in respect of the rent due on 1st May, 1st August and 1st November 1996, were paid by Nurdin without any of its employees, solicitors or agents having looked at (or even having considered looking at) the lease, at least with a view to seeing what the level of rent should be, since the execution of the Share Sale Agreement.

So far as the rent due on 1st February 1997 is concerned, it appears that it was paid on or about the date it was due, and by then Nurdin had at least woken up to the fact that it would be sensible to look at the lease. However, I am satisfied on the evidence, that Nurdin paid the rent due on 1st February 1997 on the same basis as the immediately preceding four instalments. The first intimation Mr Dye had as to the terms of the lease relating to rent was on receiving the hand written internal note to which I have referred. That was sometime in February 1997 - i.e. after the instalment of rent due on 1st February 1997 had been paid.

The rent due on 1st May 1997 was paid, even though Nurdin had been advised that, in the absence of any review or other agreement, the rent was only due at the rate of £207,683 per annum. However, that payment was apparently made in the belief that, if the rent was not paid in full as demanded by DBR, there was a risk that the lease would be forfeited. It was also paid after advice which Nurdin had received to the effect that any overpayment would be recoverable, and after Nurdin had written to DBR referring to its intention to set-off any overpayments against its future liability for rent.

Rent was also overpaid in respect of the quarter days 1st August and 1st November 1997, and 1st February and 1st May 1998. However, these payments were made following the issue and service of the instant proceedings, and following the exchange of correspondence in July 1997 between the respective parties' solicitors.

When DBR's counterclaim for rectification came on for hearing in June 1988, Nurdin applied for, and obtained, leave to amend the Statement of Claim. It contained a new paragraph 8 in these terms:

"[Nurdin] overpaid the sum of £74,172.50 from 1st February 1996 to 26th March 1998. The payment was made by mistake of fact in that [Nurdin] paid in response to [DBR's] inaccurate demands. The overpayments have continued pending the outcome of these proceedings."

When Nurdin's claim for repayment of the various overpayments of rent came on for hearing, Mr Jonathan Brock QC, who appears for Nurdin with Mr Alexander Hill-Smith, contended that Nurdin was entitled to recovery of these overpayments on various grounds (some of which only applied to some of the overpayments), namely:

1. The overpayments were made under a mistake, which is, on legal analysis, a mistake of fact, and therefore there is no bar to recovery;

2. Even if the overpayments were made pursuant to a mistake of law, it would be right to order repayment;

3. The overpayments should be repaid as they were made under compulsion or threat;

4. The overpayments should be repaid as they were made pursuant to an agreement by DBR that they be repaid should Nurdin succeed on construction and rectification (as they have done);

5. The overpayments are repayable by virtue of restitution;

6. The overpayments are repayable as interim payments, in light of Order 29 of the Rules of the Supreme Court 1965 as amended ("Order 29") or otherwise;

7. The overpayments may be set-off against future liability for rent;

8. Any overpayments which are to be repaid to Nurdin should carry interest.

In light of the way in which paragraph 8 of the Amended Statement of Claim was phrased, Mr Edward Nugee QC, who appears for DBR with Mr Patrick Walker, objected to Mr Brock arguing grounds 2 to 6, on the basis that they were not pleaded, and similarly argued that ground 7 could only be properly supported on the basis of ground 1 in light of the pleading. After hearing argument on this question, I came to the conclusion that, provided a satisfactory form of re-amendment of the Statement of Claim could be formulated (as it now has been), Mr Brock should be entitled to pursue all his proposed grounds with the exception of ground 3. In these circumstances, I propose first to deal with the question of re-amendment of the Statement of Claim and ground 3, and then turn to the other grounds.

RE-AMENDMENT AND COMPULSION

As paragraph 8 of the Amended Statement of Claim was formulated, it seemed to me to constitute the only pleaded basis upon which the overpayments were reclaimed. It contained two allegations, the first being that the overpayments were made pursuant to a mistake, and the second being that the mistake was one of fact. No particulars were sought of that paragraph, and it appeared to me, therefore, that Nurdin was entitled to advance its case on the basis of any "mistake" provided that it could also establish that the mistake in question was one of fact.

It is true that the last sentence of paragraph 8 is a little difficult to reconcile with the overpayments having been made under a mistake of fact, given that it is referring to payments to be made after the proceedings had been issued, and therefore after Nurdin must have appreciated the issues. However, I do not consider that this last sentence can alter the plain meaning of the words of the preceding two sentences of the paragraphs. Furthermore, it seems to me that, in light of the arguments as they developed, it could have been said that even those overpayments were made under a mistake, namely that such overpayments were recoverable (which, on Mr Nugee's argument they are not) and that that mistake was such that it could be characterised as one of fact, particularly in light of Mr Brock's argument as to what constituted a mistake of fact, (developed at the stage before the decision in Kleinwort).

In light of the natural meaning of the first two sentences of paragraph 8 of the Amended Statement of Claim, and the fact that the last sentence does not seriously detract from their natural meaning, it seemed to me that Mr Nugee's contention relating to grounds 2 to 6 was right as a matter of pleading.

However, I considered that it would be inappropriate to refuse leave to re-amend the Statement of Claim, unless there was a real possibility of any such re-amendment causing uncompensatable prejudice to DBR. It being common ground that, at least in respect of overpayments of rent due up to and including 1st February 1997, they were paid pursuant to a mistake, I could not see how DBR could be prejudiced by Nurdin being able to argue ground 2, and, to be fair, I did not understand Mr Nugee to contend otherwise. So far as ground 5 is concerned, it seemed to me that, as the law currently stands, it did not take matters any further, and again I did not understand Mr Nugee to disagree; furthermore, if the law were developed subsequent to the argument on reamendment, it did not seem to me that there would be any relevant facts which DBR would wish to put before the court in connection with ground 5, and certainly Mr Nugee did not so suggest. Ground 6 involves a pure point of law, by reference to facts which are not in dispute. Accordingly, subject to appropriate re-amendment, I considered that Mr Brock should be entitled to argue grounds 5 and 6.

Mr Nugee, however, opposed Nurdin being able to take ground 4, on the basis that, although Mr Brock made it clear that he put his case purely on the correspondence, DBR might have wished to call oral evidence to the effect, for instance, that conversations took place which cast doubt on what was said in the letters concerned. It appeared to me unlikely in the extreme that anything of relevance could have been said. This view was supported by the fact that, apart from some inaccurate, possibly disingenuously inaccurate, statements made in DBR's solicitors' initial letter, nobody called into question anything that had been said in the correspondence to which I have referred, during the rectification hearing. The correspondence to be relied on by Mr Brock in relation to ground 4 started on 8th April 1997, by which time the issues had been fully canvassed, and I could see no realistic possibility of DBR being prejudiced by this ground now being raised.

Ground 3, however, stands on a different basis. In my judgment, there was a real possibility of DBR being prejudiced by this ground being raised at the last minute. The compulsion or threat alleged on behalf of Nurdin would be purely internal, in the sense that, as a result of the advice he received, Mr Dye was concerned that, if rent was not paid at the rate demanded by DBR in their invoices, then DBR might exercise its right of forfeiture for non-payment of rent. Apart from a reference to forfeiture in their solicitors' letter of 24th February 1995 (which was almost a year before any overpayment of rent started) there was no question of any threat of forfeiture having been made or even hinted at by DBR. However, it is by no means inconceivable that research among the records and recollections of employees, agents or solicitors of DBR could have resulted in evidence of something having been said by a representative of Nurdin (or even DBR) which cast doubt on the genuineness of Mr Dye's concern. I considered that it would be quite unrealistic to expect DBR to investigate this matter at very short notice.

Quite apart from this, it seemed to me that Nurdin's case on ground 3 would be very weak indeed. As I have mentioned, Nurdin would simply have relied on the fact that Mr Dye, and perhaps other employees of Nurdin, were concerned that, if the rent was not paid as demanded by DBR, forfeiture (or, perhaps, distress for rent) might ensue. There is no suggestion of any such forfeiture or distress having been threatened, or even hinted at, by DBR, if the rent it demanded was not paid, apart from the threat in February 1995, and, quite rightly, Mr Brock did not rely on that, because it has no bearing on the overpayments, and it pre-dated by almost a year the first overpayment.

Assuming that Nurdin failed to recover some or all of the overpayments of rent on the basis of the other grounds they have put forward, I did not consider that they would have stood any real chance of succeeding in recovering such overpayments on the basis of a fear of forfeiture or distress, which was neither threatened nor hinted at by DBR. Mr Brock suggested that the fear of forfeiture or distress was enough, in light of observations in Maskell -v- Horner [1915] 3 KB 106 at 118 to 120, and cases cited therein, as well as in more recent observations of the House of Lords in Woolwich Building Society -v- Inland Revenue Commissioners [1993] AC 70.

I do not accept that. It appears to me that if Mr Brock is right, then any tenant who makes a payment under a lease which contains a forfeiture clause (i.e. virtually any lease), which payment would otherwise be irrecoverable in law, could recover it simply by saying that he was concerned that, if he did not pay, he would face distress or forfeiture. Indeed, as a matter of logic, it seems to go further than that: any individual or company who pays a debt because of a concern that failure to do so will result in bankruptcy or winding up proceedings could rely on that concern to justify recovery of the money which would otherwise be irrecoverable.

So far as the authorities relied on by Mr Brock are concerned, I do not consider that they assist him. It is true that in Woolwich at 164G, Lord Goff of Chieveley cited Maskell, with apparent approval, in support of the proposition that "money paid as a result of actual or threatened duress to the person or actual threatened seizure of a persons goods is recoverable", and that he went on to say at 165C/D that it would not be right "to regard the categories of compulsion for present purposes as closed". However, the very use of the words "duress" and "compulsion" indicate to me that something more than mere concern in the payer's mind is sufficient to bring himself within this category.

I do not believe that Maskell itself, takes the point any further, because it is clear that there was an actual threat of seizure in that case: indeed, actual seizure had occurred on one occasion. As to the other cases which would have been relied on by Mr Brock, namely Brisbane -v- Dacres (1813) 5 Taunt 143, Morgan -v- Palmer (1824) 2 B&C 629, Valpy -v- Manley (1845) 1 CB 594, Great Western Railway Company -v- Sutton (1869) LR 4 HL 226, and Lancashire and Yorkshire Railway Company -v- Gidlow (1869) LR 7 HL 517, it seems to me that they were all cases where the payee made it clear by word or action that, unless the payer paid the sum which could not in the event be justified, the payee would either not provide the service which he was obliged as a matter of law to provide or would execute distress or forfeiture rights which he claimed to have in respect of the payer's property. To extend that principle to a case where no threats have been made, or even hinted at, would appear to me to be quite inappropriate both as a matter of legal principle and in terms of sensible commercial practice.

WHY THE OVERPAYMENTS WERE MADE

From before 1994 until December 1996, Mr Robin Lamb was Company Secretary of Nurdin. In his evidence in these proceedings, he said that he recalled that, at the time of the Share Purchase Agreement, there was some mystification as to the status of the extra £59,338 per annum payable under the lease, and that there was difficulty in obtaining reliable information about it from the vendors of the shares in Linrock. However, he said that he recollected that he took the view, on the basis of advice he received from the solicitors and surveyors advising Nurdin, that the passing rent was in fact £207,603 per annum, and that "the extra payments in year four and five were not rentalised". He said that he was supported in that recollection by the fact that, had he thought that the rent for the residue of the term of the lease was at least £267,021 per annum, this would have meant that the lease had a substantial negative value, a view consistent with the valuation advice Nurdin appears to have been given at the time of the Share Purchase Agreement.

Mr Lamb stated that the rent was paid by Nurdin on an automated payment system: this involved payment being made automatically, if and when the invoice was passed to Nurdin's accounts department, unless that department received a positive instruction not to pay. His evidence continued as follows:

"Therefore, I never actually had to physically write out a cheque for this sum. I also recall that no rent review notice was served in November 1995 and, therefore, this extra payment [sc. the overpayment] continued to be made to the landlord and went unnoticed by myself and other members of staff..... I should have noticed that the payments had been made in error as it was my responsibility to check and sign off invoices, but for the reasons set out above I failed to notice that the rent was being overpaid."

I accept Mr Lamb's evidence. Although his memory of the relevant matters was not particularly good, there is no reason to think that he was not telling the truth: he was a credible witness. By the time he came to give evidence, he was no longer working for Nurdin or any other company within the Booker group and therefore had no obvious interest in the outcome. Although it appears that Nurdin's solicitors did not give any advice in writing as to the status of the £59,338 payable in the fourth and fifth years of the term, I believe that it is likely that they did tender some advice orally, and, given the way in which the lease was drafted, it would be surprising if that advice was anything other than to the effect that, while £59,338 was payable in the fourth and fifth years, it would fall away after the end of the fifth year. The fact that the schedule to the Share Sale Agreement recorded the rent payable under the lease in 1994 as being £267,430 per annum (which for some reason was £409 adrift) does not appear to me to call into question Mr Lamb's evidence: the schedule was only very summary in its terms, and the word "rent" was not necessarily being used as a term of art.

I should also mention that it was put to Mr Lamb that, at the time that there had been a dispute as to liability for interest, he had carried out some calculations, which indicated that he had looked at the lease. It does seem to me that, in early 1995, Mr Lamb did look at the lease for the purpose of calculating interest payments. His mind was not directed to the relevant issue, but it is fair to say that, on my understanding of his evidence as to how he calculated the interest due to DBR, he treated the £59,338 differently from the £207,683. If that has any relevance at all, which I doubt, it seems to me that, if anything, it supports his evidence as to his understanding on construction, because it shows that he did distinguish between the annual rent and the annual payments due only in the fourth and fifth year.

In these circumstances, it appears to me that in respect of the overpayments of rent made on 1st February, 1st May, 1st August and 1st November 1996, which were all paid before Mr Dye became involved and asked for the lease, the only explanation I have as to why Nurdin made those overpayments was that of Mr Lamb, which I accept. Mr Nugee contended that these four overpayments of rent were made as a result of Nurdin's misconstruing the lease. I do not consider that that is an accurate characterisation of the mistake. I find it hard to see how it could be said that Nurdin, through Mr Lamb, had misconstrued the lease, given that, when he last had considered the relevant question of construction of the lease, he had, on his evidence which I believe, been advised as to the correct construction, which he had accepted.

In my judgment, the position ultimately adopted by Mr Brock is correct: Nurdin's mistake can be characterised in one of two ways, or, possibly more accurately, in two cumulative ways. First, when putting the automated payment arrangements into effect in 1994, Nurdin failed to ensure that the arrangements were such that the level of payment was to be the subject of, at the least, reconsideration, and, at the most, automatic reduction, once the instalment due on 1st November 1995 had been paid. Further or alternatively, in November 1995, Nurdin forgot that the extra £59,338 per annum ceased to be payable under the lease, and therefore failed to instruct the accounts department not to pay DBR quarterly payments at the rate of more than £207,683 per annum unless and until the rent was reviewed above that figure.

So far as the overpayment on 1st February 1997 is concerned, it is true that, by then, Mr Dye had become involved. However, he had not had anything to do with the premises or the lease until December 1996, and, according to his evidence, which I accept, he had not seen the lease or been advised as to its terms. In those circumstances, it seems to me that the overpayment made on 1st February 1997 was paid pursuant to the same mistake or mistakes on the part of Nurdin as the four previous instalments. I shall refer to the overpayments of rent on these five instalments as "the first five overpayments".

The subsequent overpayments of rent, however, fall into a different category. It is clear that, by the next rent payment date, 1st May 1997, Mr Dye had been advised by Nurdin's solicitors that, at least on the face of it, the rent was only due at £207,683 per annum, and nothing that he, or anyone else on behalf of Nurdin, heard thereafter from DBR or anyone else appears to have caused Nurdin to think otherwise. Indeed, by the time of the subsequent payment of rent, namely on 1st August 1997, the instant proceedings had already been issued and served, and it was Nurdin's contention in those proceedings that the rent payable was, and had been since 1st February 1996, £207,683 per annum.

In these circumstances, the overpayments of rent in respect of the quarters 1st May, 1st August and 1st November 1997 and 1st February and 1st May 1998 ("the last five overpayments") were not paid by Nurdin in the mistaken belief that they were owing. The last five overpayments were made because DBR was demanding that they be paid, and because Nurdin believed, pursuant to advice that it had obtained, that, in the event of Nurdin succeeding on the questions of construction and rectification, it would be entitled to recover such overpayments. Mr Brock suggested that, in deciding to make the five overpayments, Nurdin was also influenced by its fear that DBR might forfeit the lease, but, given that the possibility of forfeiture was not even alluded to by or on behalf of DBR, save in relation to a payment of interest on late rent more than two years before the first of the last five overpayments was even demanded, I do not consider that this is an argument which carries any weight, as I have already indicated when considering Nurdin's application for leave to amend its counterclaim.

RECOVERY OF PAYMENTS MADE UNDER A MISTAKE

The law before Kleinwort

The Law Commission published a Report, "Restitution: Mistakes of Law and Ultra Vires Public Authority Receipts and Payments" (Law Com. No. 227) in November 1994. It contains a valuable analysis of the then state of the law as understood by the Commission. At paragraph 2.32 of the Report, one finds the following:

"We believe that the current position of a payment made to a bona fide payee (a payee who does not know that he is not entitled to the money, but who may have doubts) can be stated in the following way: first, where the payer knows or believes the money is not due but pays in any event the money will not be recoverable on the grounds of mistake. If a claim has been made and disputed but payment is eventually made, whether in order to avoid threatened litigation or for some other reason such as to preserve good commercial relations or to secure some advantage, it will either be a compromise or a contractual submission to the claim. If there has been no overt dispute, the reason for irrecoverability may be more difficult to characterise as submission and is better analysed as waiver. In any event in such cases there is no mistake."

At paragraph 2.33, the Report continued as follows:

"Secondly, where the payer has doubts but pays nonetheless: (a) if the payee has made a claim accompanied by a threat to sue, recovery will be denied; (b) where there has been no overt dispute, if the payer does not care which way that doubt is resolved but consciously makes a decision to pay, there will be no recovery. In other cases recovery is unlikely...."

I should also refer to paragraph 2.34:

"Thirdly, where the payer has no doubts as to his liability (he is mistaken and inadvertence or, possibly, "sheer ignorance" suffices): (a) he will recover if the mistake is one of fact or, if our recommendations below are enacted, of law; (b) if the payment is in response to a claim accompanied by a threat to sue, recovery will be denied even if the payer is mistaken; (c) if the payer has waived any claim to recover the money or has assumed the risk of any mistake, recovery will be denied."

This analysis is consistent with what Lord Goff said in Woolwich in his comprehensive analysis of the law before Kleinwort, at 164-166. In particular at 165 B-G he said that:

"Where a sum has been paid which is not due, but it has not been paid under a mistake of fact or under compulsion... it is generally not recoverable. Such payment has often been called a voluntary payment. In particular a payment is regarded as a voluntary payment and so is irrecoverable in the following circumstances.

(a) The money has been paid under a mistake of law...

(b) The payer has the opportunity of contesting his liability in proceedings, but instead gives way and pays...

(c) The money has otherwise been paid in such circumstances that the payment was made to close the transaction."

As the Law Commission said in paragraph 2.15 of its Report, "the rule precluding restitution requires the courts to draw a distinction between mistakes of law and fact, a distinction which is notoriously difficult to make". Quite apart from uncertainty, the rule that money paid under a mistake of law could not be recovered was regarded by many as what the Law Commission in the same paragraph identifies as a "perceived unfairness". None of the members of the House of Lords appear to have been enthusiastic about the principle in Woolwich; Goff & Jones on "Restitution" (4th edition), in Chapter 4 is critical of it; the principle has been actually reversed in Scotland (Morgan Guarantee Trust of New York -v- Lothian Regional Council [1995] SLT 299); further, even though it was reaffirmed in unambiguous, if strictly obiter, terms by the Court of Appeal in Friends' Provident Life Office -v- Hillier Parker May & Rowden [1997] QB 85 at 97C, it was described as a "rule [which] may... now be on the turn".

Whatever criticisms there may have been of the principle that money paid under a mistake of law is irrecoverable, it was a principle binding on me until the decision in Kleinwort. The principle was stated as the law in the House of Lords in Woolwich, decided in 1993, and the basic principle was reaffirmed by the Court of Appeal in Friends' Provident, decided in 1995. Mr Brock valiantly argued that those cases had been effectively overtaken or overruled in two subsequent decisions of the House of Lords, before Kleinwort, namely Westdeutsche Landesbank Girozentrale -v- Islington Borough Council [1996] AC 669 and Banque Financiere de la Cite -v- Parc (Battersea)Ltd [1998] 2 WLR 475. So far as Westdeutsche is concerned, it seems to me that the passages Mr Brock relied on (at 697B-F and 722G) were concerned with emphasising the way in which the law of restitution was advancing in this country, and in any event were in dissenting speeches (namely those of Lord Goff and Lord Woolf). As for Banque Financiere, it did not raise the question of whether or not a plaintiff could recover money paid under a mistake of law; it was concerned with the law of subrogation. While I see the force of the argument that it may be somewhat difficult logically to reconcile the reasoning of Banque Financiere and the principles identified by the Law Commission, none of the speeches and none of the authorities cited to or by the House of Lords in Banque Financiere suggest that there was any reference to those principles or to the speech of Lord Goff in Woolwich. Further, neither Westdeutsche nor Banque Financiere were even cited to the House of Lords in Kleinwort.

The present law

The effect of the decision of the House of Lords in Kleinwort is far reaching. The leading speech is that of Lord Goff (with whom Lord Hoffmann expressly agreed (at 1137A-B), and with whom Lord Browne-Wilkinson and Lord Lloyd of Berwick would, but for one matter, have fully agreed (see at 1099D and 1129G). Lord Goff expressed dissatisfaction with the position following the decision in Woolwich, namely that there should be a difference between "cases concerned with repayment of taxes and other similar charges which, when extracted ultra vires, are recoverable as of right in common law..." and other cases "which may broadly be described as concerned with repayment of money paid under private transactions, and which are governed by the common law" (see at 1122B). After detailed consideration of the earlier authorities in English law, the principles applicable elsewhere in common law, and in civil law, jurisdictions, he reached certain conclusions, of which two are relevant to the present case, namely:

"The present rule, under which in general monies are not recoverable in restitution on the grounds that it has been paid under a mistake of law, should no longer be maintained as part of English law... .

It is no defence to a claim in English law for restitution of money paid... under a mistake of law that the defendant honestly believed when he learnt of the payment or transfer, that he was entitled to retain the money..." (see at 1128F-H).

Accordingly, having been in an unsatisfactory state for nearly 200 years, since the Court of Kings Bench decided that money paid under a mistake of law was irrecoverable in Bilbie -v- Lumley (1802) 2 East 469, the law has now been placed on a far more attractive basis by the House of Lords in Kleinwort having overruled Bilbie. However, it is, perhaps inevitable that this important and, if I may say so, welcome, change in the law will result in fresh questions which require to be resolved. Indeed, the present case appears to me to throw up one such question.

THE FIRST FIVE OVERPAYMENTS

I have already explained the nature of the mistake or mistakes on the part of Nurdin which gave rise to the first five overpayments. Mr Lamb failed to ensure, when giving instructions to Nurdin's accounts department in 1994 that, at the very least, consideration was given to the amount of money to be paid in respect of the premises to the landlord pursuant to the lease with effect from 1st February 1996; further or alternatively, by the end of 1995 or beginning of 1996, Mr Lamb had forgotten that, because the rent had not been reviewed, he should give instructions to the accounts department to decrease the amount payable to DBR under the lease.

When Nurdin's counterclaim was initially argued, Mr Nugee contended on behalf of DBR that the nature of Nurdin's mistakes were such as to be characterised as mistakes of law, as a result of which the first five overpayments were irrecoverable from DBR in light of the law as it stood until very recently. Following the decision of the House of Lords in Kleinwort, Mr Nugee now accepts that, whether or not that contention is right is irrelevant, because, subject to any other defence open to DBR, the first five overpayments would be recoverable by Nurdin even if they had been paid by a mistake of law. However, as I have heard and considered full argument on the question of whether the mistakes in question were of law or fact, I shall briefly express my conclusion on the point.

In my judgment, each of Nurdin's oversights was, as a matter of ordinary language, a mistake of fact, not a mistake of law. Given that I have accepted Mr Lamb's evidence as accurate, his mistake was to fail to give proper instructions to the accounts department in 1994 and/or to forget that the terms of the lease required him to give fresh instructions to the accounts department in 1995/6. To put it another way, by 1995/6, he had forgotten what the lease provided. I suppose that one could characterise that as a mistake of law, in the sense that he assumed that the terms of the lease provided that the amount payable to DBR under the lease continued at the previous rate, but I consider that would be an artificial way of explaining what happened. I believe my conclusion on this point is consistent with the decision of Robert Goff J in Barclays Bank Ltd -v- W J Simms, Son and Cooke (Southern) Ltd [1980] 1 QB 677 which I discuss more fully below.

Whether that is right or wrong, it is, following Kleinwort, common ground that, in the absence of any defence by DBR (e.g. change of position, as in Lipkin Gorman -v- Karpnale Ltd [1991] 2 AC 548 at 559 and 579) Nurdin can recover the first five overpayments. Thus, Lord Loreburn LC said in Kleinwort, Sons & Co -v- Dunlop Rubber Co (1907) 97 LT 263 at 264:

"[I]t is indisputable that, if money is paid under a mistake of fact and is re-demanded from the person who received it before his position has been altered to his disadvantage, the money must be repaid in whatever character it was received."

Lord Hoffmann in Kleinwort, at 1139G, clearly considered that what he called "the defence of change of position" would apply equally to a claim for repayment of money paid under a mistake of law.

In these circumstances, the only ground upon which restitution of the first five overpayments can be resisted by DBR is if there is a defence such as change of position. Mr Nugee argued that such a defence did exist, in the sense that, had Nurdin not paid without question at the rate demanded from 1st February 1996 to about February 1997, DBR would have appreciated that the rent under the lease might well only be £207,683 per annum, in which case it would have implemented the rent review. This argument involves the following steps:

1. It would have been worth DBR's while implementing the "upwards only" rent if it had believed the passing rent to be £207,683 per annum, and not £267,021 per annum;

2. By paying at the latter rate throughout 1996 without question, Nurdin caused DBR not to implement the rent review;

3. DBR has, as a result, suffered loss;

4. That loss justifies refusing restitution of the overpayments to Nurdin.

In my judgment, DBR has not established the second, third or fourth steps. Even on the first step, its case is weak. The evidence is that the market rental value of the premises as at the date of the Share Purchase Agreement, 1994, was no more than £207,683 per annum. Given that there is no evidence of any subsequent rise or fall in values, it appears to me that I should arguably assume that the rental value of the premises remained the same 18 months later, on the review date. Indeed there is some contemporary evidence (at the end of Mr Dye's letter of 24th April 1997) that the rental value of the premises at November 1995 was less than £207,683 per annum. I appreciate that DBR might have thought it worthwhile to implement a rent review in the hope that a surveyor could be persuaded to give an increased rent, but that seems to me to be pretty speculative.

On the second step, I am by no means satisfied that DBR would have implemented the rent review if Nurdin had taken the point about the level of rent earlier than February or March 1996. It is now more than two and a half years after Nurdin first raised the point that the rent was £207,683 per annum, and 12 weeks after judgment was given in Nurdin's favour: yet DBR has not sought to implement the rent review. Even if DBR would have implemented the rent review had it appreciated that the rent with effect from 1st February 1996 was £207,683 per annum, it seems to me that the reason that it will not have done so until now will have been DBR's firm belief that, however one construed the lease, it would be rectified to accord with DBR's interpretation.

So far as the third step is concerned, DBR alleges two heads of loss. The first is the fact that, if the rent is reviewed from 17th November 1995 to a level higher than £207,683 per annum, DBR will receive a sum equal to the aggregate of the increased rental payments from and including 1st February 1996 to the present day later than it would otherwise have done. That point is easily disposed of: Nurdin is prepared to pay interest on any such sum at an appropriately compensatory rate. The other head of damage DBR alleges is that it will be more difficult and less satisfactory to carry out a rent review valuation in 1998 or 1999 by reference to November 1995 values than it would have been in 1996 when, on DBR's hypothesis, the rent review would have been carried out. I am wholly unpersuaded of that fact. Surveyors frequently have to carry out valuations, whether for clients or in the context of matters such as rent reviews, some years after the valuation date. No evidence was called to suggest any prejudice would be suffered by DBR in this regard, and I am wholly unpersuaded that I should infer any such prejudice.

Finally, in so far as I am wrong and some prejudice might be suffered by DBR, it seems to me that it would be very slight, and quite insufficient to justify an argument based on change of position: I adopt the approach of Hoffmann J in Banner Industrial & Commercial Properties Ltd -v- Clark Patterson Ltd [1990] 2 EGLR 139.

In these circumstances, I conclude that the first five overpayments are repayable, on the basis that they were paid pursuant to a mistake of fact (although it would now make no difference to my conclusion if the mistake were one of law) and that there is no special defence open to DBR.

THE LAST FIVE OVERPAYMENTS

Introduction

By the 1st May 1997, Nurdin had appreciated the effect of the terms of the lease, but knew that DBR was contending that, as a matter of construction, or in the alternative through the medium of rectification, rent was payable at a higher rate than that which Nurdin believed and had been advised was in fact the case, in terms of what the lease appeared to provide. Accordingly, as already mentioned, it appears to me that the position with regard to the last five overpayments is very different from that appertaining to the first five overpayments.

Nurdin contends that it is entitled to recover the first five overpayments on two main alternative grounds. The first involves relying on the correspondence to which I have already referred. The second ground upon which Nurdin seeks to recover the last five overpayments is that they were made pursuant to a mistake of law. I shall consider those two alternative grounds, and will then deal with the other grounds.

Nurdin's argument on the correspondence

In effect, Nurdin's case is that the last five overpayments are recoverable pursuant to an agreement by DBR that they should be repaid, if Nurdin succeeded (as it has done) on the issues of construction and rectification. In this connection, Nurdin relies on the fact that the overpayment in respect of the rent on 1st May 1997 ("the May 1997 overpayment") was made to, and accepted by, DBR following Mr Dye's letters of 8th and 24th April 1997 to DBR, and that the last four overpayments were made to, and accepted by, DBR following the issue of proceedings and the exchange of letters at the end of July 1997. In Woolwich at 165H to 166A, Lord Goff said this:

"A payment may be made on such terms as it has been agreed, expressly or impliedly, by the recipient that, if it shall prove not to have been due, it will be repaid by him. In that event, of course, the money will be repayable.... On the other hand, the mere fact that money is paid under protest will not give rise of itself to the inference of such an agreement; though it may form part of the evidence from which it may be inferred that the payee did not intend to close the transaction..."

Considering the matter free from authority, I would not be inclined to accept Mr Brock's submission on behalf of Nurdin in relation to the May 1997 overpayment. First, what Mr Dye stated in the letters of 8th and 24th April 1997 represented a statement of intention, namely to effect a set-off. It was not a statement which represented, on any fair reading, an invitation to DBR to agree anything. Secondly, if the letter contained a proposal which could have been accepted by DBR, there is no basis on which it could be said to have been accepted, because DBR never agreed to it, and never did anything, whether actively or passively, to indicate agreement: on the contrary, DBR made it clear that it did not accept Nurdin's position. Thirdly, even if Nurdin had implemented the course it threatened in those letters, the reference to what it intended to do in relation to overpayments related to past overpayments and not to future overpayments, and therefore would not be apt in any event to justify recovery of the last five overpayments.

On the other hand, I am of the view that there was an agreement in relation to the last four overpayments. That agreement was that, if Nurdin succeeded on the issues of construction and rectification, these overpayments would be repaid. On a fair reading of Nurdin's solicitors' letter of 25th July 1997, DBR understood, or at least ought to have understood, that Nurdin was indicating an intention to continue making the overpayments on the understanding that the overpayments would be repaid if Nurdin was successful on the construction and rectification issues. Although it is true that DBR's solicitor merely "note[d]" this, it appears to me that, by accepting rent at the higher rate, i.e. rent including the overpayments, without demur, DBR, by action rather than by words, effectively accepted the basis upon which Nurdin was making it clear the rent had been paid at the higher rate. Whether there is a sufficient agreement that overpayments should be repaid in a particular case is to be judged by an objective assessment of the facts in the particular case. In my judgment, to use the words of Lord Goff in Woolwich, once the instant proceedings had been issued and served on DBR, and once DBR had received and acknowledged Nurdin's solicitors' letter of 25th July 1997, DBR could not realistically say that it is to be inferred that Nurdin "intend[ed] to close the transaction" when making the overpayments on and after 1st August 1997.

So far as principle is concerned, Mr Nugee argues that DBR never agreed to the terms of the letter of 25th July 1997, and that silence on the part of an offeree cannot give rise to a contract: see Felthouse -v- Bindley (1862) 11 CBNS 869. The crucial difference between that case and the present case is that, in the present case, DBR indicated its agreement with Nurdin's proposals by accepting and retaining the payments of rent, including the overpayments, on and after 1st August 1997. It is, of course, well established that an offer can be accepted by action as well as by words.

Secondly, Mr Nugee argues that Nurdin could no more have forced the arrangement suggested in the letter of 25th July 1997 on DBR, than a debtor can force a creditor to compromise a claim by paying a cheque to the creditor for a sum lower than that which is claimed "in full and final settlement". That is an analogy which has its undoubted attractions, but I have come to the conclusion that it does not assist DBR. Just as the law is (and, in my judgment, should be) slow to hold that a creditor, who is in fact entitled to more, can be forced by a debtor to accept a lower sum in final settlement or to risk suing for all that is owed, so should the law be slow to hold that a creditor, who has been paid more than he is owed by a debtor who has made it clear in advance that he expects to receive the overpayment back if he turns out to be right, should be entitled to keep the overpayment. Where a debtor seeks to pay a sum lower than the due debt to a creditor "in full and final settlement", it is difficult to see what consideration moves from the creditor in return for giving up the balance of the debt, save where there is a genuine dispute as to all or some of the debt. On the other hand, given that the fiction that an overpayment, not made under compulsion or mistake of fact, is treated as an unreturnable gift (per Lord Goff in Woolwich at 165G), it is unconvincing to characterise the last four overpayments as gifts, given that they were made after the proceedings were issued and after the 25th July 1997 letter and at a time when the law was thought to be that money paid under a mistake of law was irrecoverable. Indeed, it is perhaps difficult to see how they can be characterised other than having been made in consideration of an acknowledgement by DBR that they would be returned in the event of Nurdin's succeeding on construction and rectification.

It seems to me that my conclusion that the last four overpayments are returnable in light of the July 1997 correspondence receives strong support from the decision of Vaisey J in Sebel Products Limited -v- Customs & Excise Commissioners [1949] Ch. 409. Indeed, if that case was correctly decided on the basis of such an agreement, Mr Brock's argument that the May 1997 overpayment was recoverable would probably succeed. However, I do not think that the decision in Sebel can be regarded as having been reliably decided on that basis in view of the fact that four of the five members of the House of Lords appear to have held that there was no such agreement in Woolwich on facts which seem to have been stronger than those in Sebel.

In Woolwich the taxpayer had written to the Revenue:

"You should be aware that we are presently seeking leave to commence legal proceedings in connection with the Regulations [pursuant to which the Revenue was claiming the payment of tax in that case] and accordingly this payment is made without prejudice to any right to recover any payments made pursuant to the Regulations which may arise as a result of legal proceedings or as a result of any future extinguishment or reduction of any liability under the said Regulations or otherwise" (see at 149B).

It was argued that, following the taxpayer's successful challenge to the validity of the Regulations in question, the effect of payment and acceptance of the tax pursuant to that letter gave rise to a contract that the tax should be returned. That argument favoured the Inland Revenue, because there was no issue as to whether the tax should be returned (and indeed the Revenue had already returned it): the issue was whether the taxpayer was entitled to interest on the tax paid during the time that the Inland Revenue had the payment. At first instance, Nolan J held that there was such an agreement - see [1989] 1 WLR 137 at 147C-E. In the Court of Appeal, Ralph Gibson LJ agreed with that view - see at [1993] AC 70 at 115F. Glidewell and Butler-Sloss LJJ did not express an opinion on the point. In the House of Lords, the majority held that, because the payment had been made by a taxpayer to a public authority, it was returnable. Lord Keith of Kinkel (who was admittedly in the minority) held that there was no agreement by the Inland Revenue to repay the taxpayer - see at 150C to 151H. He said, at 150F, that the taxpayer's letter did not state that the money was being offered on terms that it would be repaid if the taxpayer succeeded in overturning the Regulations but that the letter meant that:

"Woolwich were asserting a legal right to recover the payments in the event of the relevant Regulations being held to be ultra vires, and stating that the payments were made without prejudice to such right. In accepting the payments the Revenue were doing no more than agreeing that they would not be treated as prejudicing any such right."

Lord Browne-Wilkinson and Lord Fraser of Tullybelton did not deal with the point. While he did not deal with the point expressly, Lord Goff appears to have doubted the correctness of the reasoning in Sebel - see at 165H to 166A. Lord Slynn of Hadley (who was in the majority with Lord Goff) appears to have taken the same view as Lord Keith - see at 199F. In view of their conclusion that interest was payable it seems to me probably implicit in the reasoning of Glidewell and Butler-Sloss LJJ in the Court of Appeal and of Lord Goff and Lord Browne-Wilkinson in the House of Lords that they took the same view as Lord Keith on the question of whether there was an agreement by the Inland Revenue to repay.

The difference between the terms of Nurdin's solicitors' letter of 25th July 1997 in the present case and taxpayer's letter of 12th June 1986 in Woolwich can be said to be a fairly fine one, but it does seem to me that the letter in the present case goes further, and is expressed more unequivocally, than that in Woolwich, because of the final sentence, "Obviously the payment will be refundable if [Nurdin] is successful at trial". In my judgment, that sentence is crucial. Unlike the description of the payments as being "without prejudice" in the preceding sentence of that letter, or in the relevant part of the letter in Woolwich, it is an unambiguous statement of what it is understood will happen in the event of Nurdin succeeding. The fact that the letter in the instant case can be said to be not that different from that in Woolwich is not of great weight: given that Nolan J and Ralph Gibson LJ both clearly thought that the letter in Woolwich was sufficient to give rise to an agreement for repayment, that letter must have been near the borderline.

Accordingly, on the basis of this first argument of Nurdin relating to the last five overpayments, I conclude that Nurdin is entitled to recover the last four overpayments, but is not entitled to recover the May 1997 overpayment.

Nurdin's argument based on a mistake of law

Nurdin's main remaining argument in relation to the May 1997 overpayment (and its alternative main argument in relation to the last four overpayments) is that any such overpayment was made under a mistake of law, and, following the decision of the House of Lords Kleinwort, it is now recoverable on that basis, albeit that, until the decision in Kleinwort, it was rightly accepted on behalf of Nurdin that it would not have been so recoverable.

Nurdin's argument proceeds thus. The May 1997 overpayment was made by Nurdin to DBR on the basis of a belief on the part of Nurdin that, if DBR failed in its arguments on construction and on rectification, the overpayments would be repayable by DBR. It is accepted by Mr Brock on behalf of Nurdin that, at least in the absence of any other factors, a payment is irrecoverable if it is made in circumstances where it is not due, and where the payer is aware that the payment may not be due, and, indeed, knows the basis upon which he may be able to defend his liability to make the payment. In other words, Nurdin accepts that, while the House of Lords has decided that money is not irrecoverable because it was paid under a mistake of law pursuant to a bona fide demand, the decision does not go so far, at least in the absence of special facts, to enable a person who has made a payment which is not due to recover it, where he was aware that he might not be liable to pay.

That this concession is rightly made is perhaps most easily appreciated by considering what Lord Hope of Craighead said in Kleinwort at 1147H:

"Cases were the payer was aware that there was an issue of law which was relevant but, being in doubt as to what the law was, paid without waiting to resolve that doubt may be left on one side. A state of doubt is different from that of mistake. A person who pays when in doubt takes the risk that he may be wrong - and that is so whether the issue is one of fact or one of law."

The special fact in the present case upon which Mr Brock relies as justifying repayment of the May 1997 overpayment is that it was made pursuant to a mistake of law on the part of Nurdin, and that mistake was Nurdin's belief that it would be entitled to recover that overpayment if the Court found in its favour on the issues of construction and rectification. That mistake, says Mr Brock, is a mistake of law, and, as the May 1997 overpayment would not have been paid had that mistake not have been made, that overpayment was, he says, made under a mistake of law, and is therefore recoverable following the decision of the House of Lords in Kleinwort.

In this connection, it is right to say that Mr Brock's argument is justified in so far as the facts are concerned.

I am quite satisfied on the evidence in this case that the May 1997 overpayment would not have been made in the absence of the belief, induced by Mr Drew, and accepted and acted on by Mr Dye, that, if it transpired that the overpayments were not in fact due to DBR, Nurdin could recover them. I am satisfied that, had Mr Dye not been led to believe that recovery was possible, he would not have authorised payment of the May 1997 overpayment, and it would not have been made. I appreciate that Nurdin was also concerned about a possible threat of forfeiture. However, given its belief by the date of payment, that the May 1997 overpayment was not due, the oral and documentary evidence, supported as they are by common sense, satisfy me that, without Nurdin's mistaken belief as to its recoverability, the May 1997 overpayment would not have been made.

Against this, Mr Nugee contends on behalf of DBR that nothing in the decision of the House of Lords in Kleinwort affects the previous law so far as the May 1997 overpayment is concerned. This is because the May 1997 overpayment was not made by Nurdin under a mistake as to whether or not it was liable to make it, but under a mistake as Nurdin's right to get it back. Mr Nugee contended that the decision in Kleinwort is only concerned with a case where a payment is made under a mistake of law by the payer as to whether or not he is liable to make the payment.

Mr Nugee attractively argued that Nurdin's claim for repayment is logically unsustainable. The argument proceeds thus. Either the May 1997 overpayment is recoverable, or else it is not. If Mr Brock succeeds in his argument, and the overpayment is recoverable, there was no mistake; on the other hand, if Mr Brock is wrong in his argument and the overpayment is not recoverable, then that is the end of the matter. Accordingly, DBR contends, the question of according Nurdin relief for the consequences of mistake simply does not arise in relation to the May 1997 overpayment.

In support of his contention, Mr Nugee relies on two passages in the speech of Lord Hope in Kleinwort, one of which I have already quoted, and the other of which appears slightly earlier (at 1146H-1147A) and is in the following terms:

"It is the mistake by the payer which... renders the enrichment of the payee unjust. The common law accepts that the payee is enriched where the sum was not due to be paid to him, but it requires the payer to show that this was unjust. Whereas in civilian systems proof of knowledge that there was no legal obligation to pay is a defence which may be invoked by the payee, under the common law it is for the payer to show that he paid under a mistake."

I do not consider that DBR gets much assistance from either of these observations of Lord Hope. In the first place, the decision of the House of Lords in Kleinwort was concerned with a case where a payment had been made under a mistake of law of the sort identified by Mr Nugee, namely a mistake as to liability, and consequently any observations must be read in that light. Secondly, the passage which I first quoted from the speech of Lord Hope was concerned with a case similar to that involving the last five overpayments in the present instance, but where there are no superadded facts (such as the correspondence which I have dealt with in the previous part of this section of my judgment, or the fact that there was a mistaken understanding on the part of the payer, which I address in this part). As to the second passage I have quoted from Lord Hope, it serves to emphasise that recovery of money under a mistake is ultimately an aspect of the law of restitution (a point which Mr Brock has always maintained) and also to emphasise that, unlike in civil systems, the burden of proof where a person seeks recovery of an overpayment is imposed by the common law on the payer.

Mr Nugee also sought to derive support from the contradistinction in the speech of Lord Goff in Woolwich between a case where "the money has been paid under a mistake of law" and a case where "the payer has the opportunity of contesting his liability and proceedings but instead gives way and pays" (in the passage at 165B-G which I have already quoted). Mr Nugee's point is that Lord Goff clearly distinguishes between a case where the mistake of law relates to the fundamental question of liability, and a case where the payer makes no such mistake, but makes, as I understand it, some other sort of mistake. Further, as with the observation of Lord Hope, Lord Goff's second type of case does not have the super added fact relied on by Nurdin here. Lord Goff was summarising the law before Kleinwort, and there is no reason to think that the sort of distinctions raised by Mr Nugee in the present case were in his mind.

In my judgment, Nurdin's argument on this point is correct. First, as a matter of principle, it seems to me that the correct question for the Court to ask itself when considering whether money was paid under a mistake of law (and is therefore prima facie recoverable) would at least normally be whether the payment would have occurred if the payer had not made the alleged mistake. It is hard to see a good reason, either in principle or in practice, for holding that a person should be entitled to recover a payment made under a mistake, if that mistake relates to the question of his liability, but that he should not be entitled to recover the payment if the mistake was of some other nature. As I see it, if there was a mistake, and it related directly and closely to the payment and to the relationship between payer and payee, and, above all, if the mistake had not been made there would have been no payment, then the payment in question is prima facie recoverable. I would hesitate, particularly so soon after the decision in Kleinwort, before trying to lay down any general principle, but it does seem to me clear that in order to found a claim for repayment of money paid under a mistake of law, it is necessary for the payer to establish not only that the mistake was made but also that, but for the mistake, he would not have paid the money. It may be that the payer must go further and establish, for instance, that the mistake was directly connected to the overpayment and/or was connected to the relationship between payer and payee. I doubt whether such further requirements, if they exist, would take matters any further in most cases. However, if such further requirements do exist, I believe that they are satisfied here in relation to the May 1997 overpayment (and indeed would be satisfied in relation to the last four overpayments).

Secondly, I derive assistance in reaching this conclusion from the common sense approach (if I may so characterise it) of Lord Hoffmann in Kleinwort. In relation to a client seeking advice from a solicitor on a somewhat different type of distinction, he said this:

"It seems to me that the imaginary client would have great difficulty in understanding how these distinctions can arise out of a rule giving a remedy for unjust enrichment. In each case he thought that the obligation was valid and it has subsequently turned out that it was not. In principle, the question should not turn upon what other people might have thought was the law but upon what he thought was the law" (see at 1138F).

So, here, I believe that it would be surprising if the payee was unjustly enriched because the payer thought he was liable to make the payment, but that he would not be unjustly enriched if the payer, knowing that there was an argument as to whether he was liable or not, made the payment in the clear belief that he thought it would be recoverable if it turned out not to have been due as a matter of law. For the issue of recoverability to turn upon a nice analysis as to the precise nature of the mistake of law appears to me to be almost as undesirable as it is for recoverability to turn upon whether the mistake made by the payer was one of fact or law.

Thirdly, it seems to me that my conclusion is supported by the reasoning in Barclays Bank Ltd -v- W J Simms Son & Cooke (Southern) Ltd [1980] 1 QB 677, a case which raised:

"The question whether a bank, which overlooked its customer's instructions to stop payment of a cheque and in consequence pays the cheque on presentation, can recover the money from the payee as having been paid under a mistake of fact" (see at 682F).

Robert Goff J decided that the answer to the question was that the bank could recover in those circumstances unless there was a defence, such as change of position (see at 695C-D).

Having discussed three decisions of the House of Lords, Kleinwort Sons & Co -v- Dunlop Rubber Co. (1907) 97 LT 263, Kerrison -v- Glyn, Mills, Currie & Co. (1911) 81 LJKB 465 and R E Jones Limited -v- Waring & Gillow Limited [1926] AC 670, he held, in effect, that the reasoning in each of those three decisions was "inconsistent with the proposition that the only mistake which will ground recovery is a mistake which leads the payer to believe that he is liable to the payee to pay it to him" (at 691F; see also at 690G and 693G). Robert Goff J characterised the nature of the mistake of fact necessary to found a claim for recovery in these terms at 692A-B:

"It thus appears that provided the plaintiff's mistake is "vital" or "material", which I understand to mean that the mistake caused the plaintiff to pay the money, the money is prima facie recoverable... ."

Later, he expressed the principle in very similar terms at 694D to F:

"[I]t is not a prerequisite of recovery that the plaintiff must have mistakenly believed that he was liable to the defendant to pay the money to him. ...[I]t is sufficient to ground recovery that the plaintiff's mistake should have caused him to pay the money to the payee."

That case was, of course, decided some 20 years before Kleinwort, and therefore at a time when it was thought that money paid under a mistake of law was irrecoverable. However, whether one looks at it as a matter of logic, as a matter of authority, or as a matter of common sense, it seems to me that the test propounded by Robert Goff J in Barclays Bank should apply equally to a case where the money was paid under a mistake of law. Given that a claim for money paid under a mistake, whether of fact or law, is a claim based on restitution (per Lord Hope) it is hard to see in logic why there should be any difference; given the reasoning of Lord Goff in Kleinwort, it would effectively be contrary to authority not to hold that the same principles applied to cases involving mistake of law as to cases involving mistake of fact; the robust approach of Lord Hoffmann similarly points firmly in favour of the view that the same principle should apply in each case.

It may be said that the mistake did not "cause" the payment, and it is fair to say that the concept of causation is one of which the Courts and writers have had much to say in many areas of law. As I have mentioned already, I consider that the "but for" test, (possibly coupled with a requirement for a close and direct connection between the mistake and the payment and/or a requirement that the mistake impinges on the relationship between payer and payee), is sufficient, in my judgment, to found a claim based on mistake. This seems to me to receive some support from the words used in earlier authorities; "material" and "vital", to describe the necessary quality of the mistake.

It may also be said that my conclusion involves wrong advice turning out to be right, a logical paradox of the type illustrated by the fictional Cretan who said that all Cretans were liars. That is on the basis that the advice to Nurdin was that the overpayments were recoverable, the advice was wrong, Nurdin followed that advice, therefore Nurdin paid under a mistake of law, therefore the advice was right; therefore, no mistake was made. This is really another way of putting Mr Nugee's argument that Nurdin's case is logically unsustainable. The trouble with this argument is that it appears to me to amount to a classic vicious circle, because, if one follows the last step in the argument, the overpayment is not repayable, in which case the advice given to Nurdin, upon which it relied, was wrong, in which case the overpayment was made pursuant to a mistake. In my judgement, at least following the decision in Kleinwort, and in light of the factors I have already discussed, it seems to me that the right point at which to cut the vicious circle is at the point where one concludes that Nurdin made the May 1997 overpayment under a mistake of law. In other words, while I accept that the particular nature of the mistake in the present case does present an unusual logical problem in relation to the payer's claim for repayment, I do not think that it should stand in the way of the conclusion I have reached.

In those circumstances, applying the test laid down by Robert Goff J, it appears to me that the mistake in question "caused" Nurdin to make the May 1997 overpayment. If I am wrong on the question of a contract so far as the last four overpayments are concerned, then for the same reasons, the same conclusion would apply to them. It therefore follows that, in my judgment, that the last four overpayments would be recoverable on this alternative ground, and that the May 1997 overpayment is recoverable on this ground.

Although not necessary, in my view, to support the conclusion I have reached, it is right to mention two further factors, which give me comfort in reaching this conclusion, bearing in mind that, particularly in light of Lord Hope's speech in Kleinwort (see 1146Bff), a claim for repayment of money paid under a mistake of law is really an aspect of unjust enrichment. First, in light of Mr Dye's letters of 8th and 24th April 1997, DBR probably appreciated, and certainly were in a position to appreciate, that Nurdin must have believed that it would be entitled to recover the overpayments of rent it subsequently made, if it transpired that DBR was wrong in its contention. While it is unnecessary for the Court to be satisfied that the payee knew of the payer's mistake before it could order repayment to the payer, it appears to me to make a claim for repayment all the more meritorious if it can be shown that the payee had contemporaneous information indicating to him that the payer was making the relevant mistake. Secondly, as Mr Brock points out, DBR's solicitors' letter of 16th April 1997 contained an erroneous explanation as to how the rent review clause came to be drafted: they and their clients were involved in the drafting of the lease, whereas Nurdin was, of course, not in any way so involved.

Accordingly, at least when the May 1997 overpayment was made, it was at a time when the payer had communicated his mistake to the payee and at a time when the payee had inaccurately summarised the relevant history to the payer. That appears to me to render Nurdin's claim to recover the May 1997 overpayment, based as it is in unjust enrichment, an attractive one. Although the first factor can be said to apply to the last four overpayments, the second factor does not, because DBR's solicitors put things right by their letter of 2nd May 1997.

Nurdin's other arguments

So far as Nurdin's other arguments are concerned, I do not think they take matters any further so far as recovery of the last five overpayments is concerned. As I have already mentioned, under the law as it stood before Kleinwort, a restitutionary claim could not have been brought by Nurdin in respect of the May 1997 overpayment: in light of the valuable analyses of Lord Goff in Woolwich and of the Law Commission, the last five overpayments would not have been recoverable on the basis of the principles there enunciated, and I do not think that the law was subsequently changed by the reasoning or decisions in Banque Financiere. In so far as Nurdin can now rely on mistake of law, a restitutionary claim is now probably no more than another way of describing the cause of action described in the third part of this section of the judgment.

The claim for repayment on the basis that overpayments were interim payments, whether under Order 29 or otherwise, can only apply to the payments made after the issue of proceedings (because it is only then that Order 29 could come into play) or after the 25th July 1997 letter (which could be said to involve treating the payments as "interim" payments as a matter of ordinary language). Therefore, this argument could only have applied to the last four overpayments. However, I should deal with the argument as it could have some bearing on the date from which interest is to run. It is right to say that, at first sight, it seemed to me that Mr Brock's argument based on Order 29 was misconceived. However, having been taken to the wide definition of "interim payment" in Rule 9, and the wide ambit of Rule 17 (which enables the court to order repayment of interim sums paid by agreement as well as pursuant to a court order) it appears to me that the point has real force. However, in the end, I think it must be rejected. Given that DBR never counterclaimed in the proceedings for rent, and given that it never would have been able to counterclaim for rent (because it was being paid), it seems to me that the overpayments after the issue of proceedings cannot fairly fall within the definition of "interim payment" within Order 29 Rule 9: in my judgment, that definition must be limited to referring to sums which are claimed, or (at least arguably) could be claimed, in the relevant proceedings.

I am also of the view that Nurdin's argument that any of the overpayments, and in particular the May 1997 overpayment, could be set off against any future liability for rent, takes matters no further. As Mr Nugee said, either the overpayments are recoverable by Nurdin, in which case they can be set off against Nurdin's future liability for rent, or they are not recoverable, in which case they cannot be so invoked. No authority has been cited to me which suggests that the contrary view is maintainable.

INTEREST

So far as the first five overpayments are concerned, I have held that they are repayable because they were paid under a mistake of fact. It is a matter for the court's discretion as to whether to order DBR to pay interest on those sums. Where a defendant is ordered to pay or repay a sum to a plaintiff, a concomitant order for the payment of interest on that money in respect of the period that it has been kept by the defendant is not intended to be a penalty on the defendant. It is more intended to compensate the plaintiff for the fact that he has been kept out of his money by the defendant. Accordingly, in the absence of good reasons or special factors, the court ought normally award interest in favour of a plaintiff. Nurdin thus seeks interest from the date upon which overpayment was made.

Mr Nugee puts forward a powerful argument as to why DBR should not have to pay interest in respect of the first five overpayments, at least until the Statement of Claim was amended on the first day of the trial, namely 30th June 1998, to claim repayment. He points out that Nurdin's claim for the first five overpayments is based in restitution, and no claim for the repayment was made until the amendment on the first day. The first five overpayments had initially been demanded by DBR in good faith and paid by Nurdin without complaint. Since 1997, when Nurdin had first raised the issue, the overpayments had only been the subject of a claim for set off against future rent, which would not have involved repayment with interest. Mr Nugee refers to the observations and decision of Robert Goff J in BP Exploration Co (Libya) Ltd -v- Hunt (No. 2) [1979] 1 WLR 783 at 847H to 849D. In that case, the Judge ordered interest only from the date upon which it was made clear by BP to Mr Hunt that it would be making a restitutionary claim against him. Although that decision inevitably turned on its own particular facts, it was cited with approval by the Court of Appeal in Allied London Investments Ltd -v- Hambro Life Assurance plc [1985] 1 EGLR 45 at 46. In that case, where the claim was in debt, the Court of Appeal held that the view of the first instance judge, namely that interest should run on a debt of which the debtor was unaware only from the date on which he should have first have been aware of it, was "entirely proper": see also at 46. Again, of course, that case inevitably turned on its own facts.

There is obviously a powerful argument for saying that it nonetheless remains the case that Nurdin was kept out of each of the five overpayments, which were effectively its property, from the date of each respective overpayment, and that DBR had the benefit of those overpayments from the date that each of them was made. On the other hand, DBR demanded the overpayments in good faith, and Nurdin paid them without complaint and due to a mistake for which it can be said to have been largely responsible. In all the circumstances, while I do not think it would be just to make DBR pay interest on each of the first five overpayments from the date upon which they were made, it does not seem to me that it would be fair on Nurdin to restrict the running of interest on the first five overpayments to the date upon which Nurdin amended its Statement of Claim to claim the return of the first five overpayments. In all the circumstances, I have reached the conclusion that, given the unusual history of this matter, and in light of the guidance (inevitably limited because they each depended on their respective particular facts) in the two cases just mentioned, DBR should pay interest on the first five overpayments from the 21st May 1997.

My reason for the choice of this date is as follows. DBR first knew that the first five overpayments were being claimed when it received the letter of 8th April 1997, but Nurdin's stated intention in that letter was not to seek repayment at once, but to set off the overpayments against future rent. The only reason Nurdin did not do this was because DBR was maintaining its right to retain these overpayments, even once it had been pointed out to DBR by Nurdin that there was no entitlement to them. While there is much to be said for the 8th April 1997 as the right date, the 1st May 1997 is when the bulk of the first five overpayments would have been notionally recovered by Nurdin, through not paying any of the rent due on that day; however, some of the first five overpayments would not have been recovered until set-off against the rent due on 1st August 1997. If one is to take a single date from which interest is to be payable in respect of all five overpayments (as the arguments of both Mr Brock and Mr Nugee appeared to assume if one was taking a date later than 1st February 1997) that would suggest a date after 1st May and before 1st August, but rather nearer 1st May. My reason for selecting the 21st May 1997 is that 14th May was the date upon which Nurdin, through its solicitors, actually demanded repayment from DBR, through its solicitors, of the overpayments of rent which had been made and it allows DBR seven days to effect the repayment. Since the first five overpayments were, in my view, repayable, they should have been repaid pursuant to that demand.

So far as the last four overpayments are concerned, I have concluded that they are recoverable by virtue of the terms of Nurdin's solicitors' letter of 25th July 1997. As a result of that, it seems to me that the arrangement between the parties amounted to one whereby the last four overpayments should have been reimbursed to Nurdin once the construction and rectification proceedings had been determined in their favour. In those circumstances, the reasoning of Nolan J in Woolwich at [1989] 1 WLR 137 at 147C-E and 148E-G and of Ralph Gibson LJ at [1993] AC 70 at 116B, leads to the conclusion that Nurdin have no right to any interest in respect of the last four overpayments save in respect of the period from 7 days after I handed down judgment on 17th July 1998 (to allow DBR a reasonable time for repayment). Although it is at least arguable that I am not bound by the reasoning and conclusions of Nolan J and Ralph Gibson LJ on the question of interest, I propose to follow them; their analysis appears to me, with respect, to be hard to fault; indeed, Mr Brock did not criticise their reasoning. In these circumstances it would be positively wayward for me to do otherwise.

As to the May 1997 overpayment, which, it will be recalled, is recoverable because it was paid under a mistake of law, I consider that it should bear interest from 21st May 1997. In agreement with the submission of Mr Brock, it appears to me that it should bear interest from the same date as the first five overpayments. Had I concluded that the last four overpayments were not recoverable by virtue of contract, but were recoverable on the ground of having been paid under a mistake of law, I would have awarded interest on them from the respective dates of payment.

I understand that the appropriate rate of interest has been agreed between the parties.

CONCLUSION

In these circumstances, I reach the following conclusions:

1. Nurdin is entitled to recover the overpayments of rent it made to DBR on 1st February, 1st May, 1st August, 1st November 1996 and 1st February 1997 on the ground that they were paid under a mistake of fact, or in the alternative, a mistake of law;

2. Nurdin is entitled to recover the overpayment of rent it made on 1st May 1997, on the ground that it was paid under a mistake of law;

3. Those six overpayments should be repaid with interest, such interest to run from 21st May 1997;

4. Nurdin is entitled to recover the overpayments of rent made on 1st August, 1st November 1997, 1st February and 1st May 1998, on the ground that they are repayable in contract, or alternatively on the ground that they were paid under a mistake of law;

5. Those four overpayments should be repaid with interest, such interest to run from 24th July 1998.