What Constitutes An "Excusable Mistake" In Unjustified Enrichment Claims?

In the case of Mhlari NO and Others v Nedbank Limited, the Supreme Court of Appeal ("the SCA") clarified the circumstances that constitute an "excusable mistake" under the conditio indebiti. Additionally, the court outlined the specific situations in which the conditio indebiti applies.

Background

A trust concluded a loan agreement with Nedbank. In terms of the agreement, Nedbank was to loan ZAR14 million to the trust. The trust made regular payments but subsequently defaulted. The trust deed stipulated that a certain number of trustees had to be in office for agreements to be legally binding on the trust.

When this loan agreement was concluded with Nedbank, there was an insufficient number of trustees in office. In light of this, the SCA found the agreement to be void. There was therefore no contractual claim that Nedbank could rely on, and instead, Nedbank had to base its claim on unjustified enrichment.

Understanding the conditio indebiti

The conditio indebiti is a specific unjustified enrichment action which is utilised in situations where money or property has been transferred to fulfil an obligation but fails to do so. A plaintiff relying on the condictio indebiti must satisfy the following requirements:

• The transfer was undue due to no legal obligation existing at the time of the transfer; and
• The transfer was made under circumstances that warrant restitution.

For a transfer to be made under circumstances that warrant restitution, the plaintiff must have either:

• Made an excusable mistake when enacting the transfer;
• Made the transfer under duress and protest; or
• Made the transfer in a scenario where an excusable mistake or duress and protest is not required.

Like all enrichment claims, a plaintiff must also satisfy the four general enrichment requirements:

• The defendant must be enriched;
• The plaintiff must be impoverished;
• The defendant's enrichment must be at the expense of the plaintiff; and
• The enrichment must be without legal cause.

The SCAs findings

In quoting the SCA judgment in Willis Faber Enthoven (Edms) Bpk v Receiver of Revenue and Another ("Willis Faber"), the court found that the conditio indebiti finds application in situations where payments were made under a void contract or where the making of the payments was intended for the purpose of fulfilling obligations, but the payments failed to do so.

The SCA held that various factors need to be considered to determine if a mistake was excusable under the conditio indebiti for restitution to be ordered:

• The relationship between the enriched and impoverished parties;
• The conduct of the enriched party;
• Whether the enriched party was aware of the impoverished party's mistake;
• Whether the enriched party contributed to the impoverished party making a mistake;
• The state of mind of the impoverished party; and
• The culpability and ignorance of the impoverished party in making the payment.

Importantly, the court reiterated the principle that the impoverished party must prove that their conduct of making the payment was not negligent or included elements of slack.

The court found that where a defendant has warranted the correctness of information to a plaintiff and has made representations by continuing to make payments in terms of an agreement despite it being void – it cannot be said that the impoverished party was "slacking" by effecting the transfers. An impoverished party is thus entitled to rely on these types of representations and conduct made by the enriched party. It is in these circumstances where the conditio indebiti will result in restitution.