Equitable Remedies

Worksheet 8
The Remedies of Recession & Rectification

Topic outline – the remedy of rescission:

• The remedy of rescission
• Grounds for rescission
• Loss of the right to rescind

Topic outline – rectification:

• The remedy of rectification
• The nature of the remedy
• Instruments which may be rectified
• Defences to rectification

Learning outcomes:
By the end of this topic, students should be able to:
1. Outline the features of the remedy of rescission;
2. Evaluate the grounds where recession is available;
3. Discuss the conditions which result in the loss of the right to rescind;
4. Identify the principles underlying the remedy of rectification;
5. Assess the nature of the remedy of rectification;
6. Distinguish instruments which may be rectified;
7. Summarize the defences to the remedy of rectification;
8. Explain and effectively deploy in both problem and essay question – by means
of case law, legislation and secondary sources – the core principles relating to
the remedies of rescission and rectification.

Required readings:
• Glister & Lee. Hanbury and Martin on Modern Equity, 20th ed. (Sweet &
Maxwell, 2015), pp. 825 – 856; And

DRE pg. 1
 • Ben McFarlane and Charles Mitchell, Hayton and Mitchell on the Law of
Trusts & Equitable Remedies: Text, Cases & Materials 14 ed. (Sweet &
Maxwell, 2015), pp. 820 – 847

Key cases – rescission:

• Allcard v Skinner (1887) 36 Ch D 145
• Lyon v Home (1868) LR 6 Eq 655
• Nottidge v Prince (1860) 2 Giff 246
• Tate v Williamson (1886) LR 2 Ch App 55
• UCB Corporate Services Ltd v Williams [2000] EWCA Civ 555
• Inche Noriah v Sheik Allie Bin Omar [1929] AC 127
• Re Brocklehurst’s Estate, Hall v Roberts [1978] Ch 14
• R v Attorney General of England and Wales [2003] UKPC 22
• Cheese v Thomas [1994] 1 All ER 35
• Halpern v Halpern (No. 2) [2007] 3 All ER 478
• Barclays Bank plc v O’ Brien [1994] AC 180
• National Westminster Bank plc v Morgan [1985] AC 686
• Royal Bank of Scotland plc v Etridge (No. 2) [2002] AC 773
• Bank of Credit and Commerce International SA v Aboody & Another [1992] 4
All ER 955
• First National Bank plc v Achampong [2003] EWCA Civ 487
• CIBC Mortgages v Pitt [1993] UKHL 7
• TSB Bank v Camfield [1995] 1 W.L.R. 430
• Dunbar Bank v Nadeem Dunbar Bank Plc v Nadeem & Anor [1998] EWCA Civ
1027
• National Westminster Bank plc v Amin [2002] UKHL 9
• Annulment Funding Co Ltd v Cowey and another [2010] EWCA 711
• First Plus Financial Group v Hewett [2010] EWCA Civ 312
• National Commercial Bank of Jamaica v Hew [2003] UKPC 51, (2003) 63 WIR
183
• Dailey v Dailey (2003) 63 WIR 63
• Turnbull & Co v Duvall [1902] AC 429
• Dib v Karam (1963) 11 WIR 499

DRE pg. 2
 • De Freitas v Alphonso Modern Record Store Ltd (1991) 45 WIR 245
• Murray v Deubery (1996) 52 WIR 147
• Republic Bank Ltd v Plus Enterprises Ltd (1990) Ltd. (2009) High Court of
Trinidad & Tobago, No. 2839 of 1995, unreported [Carilaw TT 2009 HC 21]
• Redgrave v Hurd (1881) 20 Ch D 1
• Cooper v Phibbs (1867) LR 2 HL 149
• Bell v Lever Brothers Ltd [1932] AC 161
• Solle v Butcher [1950] 1 KB 671
• Great Peace Shipping v Tsavliris Salvage (International) Ltd [2003] Q.B. 679

Key cases: Rectification:

• Craddock Bros v Hunt [1923] 2 Ch. 136
• Joscelyne v Nissen [1970] 2 QB 86
• A Roberts & Co Ltd v Leicestershire County Council [1961] 2 All ER 545
• City and Westminster Properties (1934) Ltd v Mudd [1959] Ch 129

The remedy of Rescission

• rescission is an equitable remedy, which when invoked entitles a party to a
contract to have the contract set aside and for the party to be restored to his
former position

• in Buckland v Farmer and Moody, Buckley LJ said that the word ‘rescind’ had
no primary meaning – the sense in which it is used in a particular case must be
discovered from the context

• the right to rescind is the right of a party to a contract to have it set aside and
be restored to his former position

• the contract remains valid, unless and until rescinded, so that, third parties may
acquire interests in it in the meantime

• an action for rescission may entitle a claimant to an indemnity

see Whittington v Seal Hayne (1900) 82 LT 49

DRE pg. 3
 Newbiggins v Adam (1886) 34 Ch. D 582

• rescission sets aside a contract both retrospectively and prospectively

• notice of rescission is usually required

see
o Car & Universal Finance Co. Ltd v Caldwell [1961] 1 QB 525
o Newtons of Wembley v Williams [1965] 1 QB 560

• rescission is not a judicial remedy as such, for it may be achieved by the act of
the parties: nevertheless, the assistance of the court is often invoked – for
example to secure restitution of any property

• equity has been traditionally been more flexible than the common law in its view
of restitutio in integrum, although the distinction is becoming harder to maintain

• equity can effect what is necessary, for example by ordering accounts or

enquiries, or an allowance for services rendered

• the party rescinding is entitled to be restored to the position (s)he would have
been in, had the contract not been entered into

• (s)he cannot recover damages, as this would put them in the position he would
have been in if the contract was performed

See o Redgrave v Hurd (1881) 20 Ch D 1

• a voluntary disposition – such as a gift, may be set aside in equity on the ground
of mistake

see
o Gibbon v Mitchell [1990]1WLR1304
o Dent v Dent [1996]1WLR683

DRE pg. 4
 o Wolff v Wolff [2004] WTLR 1349

• the test to be satisfied is that the transferor would not be acted as he did if he
was aware of the true facts
o such a disposition would be voidable not void

• there are 2 primary modes of rescission:

1. by parties – where the right to rescind is expressly provided for in the

contract, rescission may be effected without judicial intervention – i.e. by the
act of the parties without the assistance of the court

See Car & Universal Finance v Caldwell [1961] 1 QB 525

2. by the courts – where however a party wishes to secure restitution – and/or

other equitable reliefs e.g. ordering of accounts, judicial intervention will be
required

Grounds for rescission

• the following relate to rescission of contracts for mistake, where different
considerations apply than in the case of unilateral dispositions

1. on grounds of mistake
2. on other grounds:
a) misrepresentation
b) undue influence

1. on grounds of mistake
• while mistake alone may justify the refusal of an order of specific performance
(e.g. Wood v Scarth (1855)) mistake alone is not an automatic ground for
rescission
o however a mistake induced by fraud, or by misrepresentation, or
deliberately not corrected in a situation that called for full disclosure is a

DRE pg. 5
 more compelling case than a mistake arising without the responsibility
of the party.

• the inherent principle of the freedom to contract, principles and maxims such
as the maxim caveat emptor etc. operate

o however some limits apply, even at common law

• for instance a party cannot remain silent when he knows that the other
party is mistaken as to what the actual terms of the contract are, or in
certain cases of mistake as to the identity of the person contracted with

• the equitable remedy of rescission is available in cases of common mistake in

extremely limited circumstances which in effect amount to impossibility of
performance or frustration

o the common mistake must be so fundamental as to render the contract

void at common law

o such circumstances are the res extincta and res sua cases and those
falling within the principles of Cooper v Phibbs (1867) LR 2 HL 149

• it was until recently established that there was a jurisdiction in equity to rescind
on the ground of mistake common to both parties in circumstance where the
contract was valid at common law

o this has now been discredited in Great Peace Shipping Ltd v Tsavliris
(International) Ltd (2002) as inconsistent with the House of Lords
decision in Bell v Lever Brothers (1932)

2. other grounds
• mistake in a wider sense may give rise to the right to rescind, as where the
mistake results from a misrepresentation, as well as cases of constructive

DRE pg. 6
 fraud, which embraces the doctrines of undue influence and unconscionable
bargains

• the right to rescind may also be granted expressly by the terms of the contract,
which will then govern the exercise

• there is also the right to rescind where there has been a substantial mis-
description in a contract for the sale of land

cross reference: o Glister & Lee. Hanbury and Martin on Modern Equity,
20th ed., pp. 741– 743: paras. 270040 – 270042

a. Misrepresentation (other grounds)

• where the misrepresentation is fraudulent, the contract could be set aside at
both law and equity

o “fraudulent” here means that the misrepresentation was make

knowingly or recklessly

see: • Derry v Peek (1889) 14 App. Cas. 337

o it must be intended to be acted upon, and actually have had this result

• equity alone however gave relief where the misrepresentation was not
fraudulent

o such an ‘innocent’ misrepresentation was not recognised at common

law unless it had become a term of the contract

see • Heilbut Symons & Co v Buckleton [1930] A.C. 30

• it should be noted that silence does not constitute a misrepresentation, unless

it creates a false impression by distorting the meaning of a positive statement

DRE pg. 7
 see Oakes v Turquand (1867) L.R. 2 H.L. 325

• there is a duty of disclosure for contracts uberrimae fidei, as contracts of

insurance, company prospectuses and contracts for family settlements

• as far as innocent misrepresentation is concerned, equity’s jurisdiction

depended on the force of the misrepresentation on the claimant’s mind, rather
than the mental state of the defendant when he made it, or on the relative
importance of the contract represented as a whole

o thus a claimant seeking rescission on this ground did not have to prove
negligence or any other degree of fault in the defendant, but only the fact
of his own reliance on the statement and its untruth

see
• Brown v Raphael [1958] Ch 636 at 644
• Redgrave v Hund (1881) Ch D1, at pp 12 – 13
• Adam v Newbigging (1881) 13 App Cas 308
• Cooper v Joel (1859) 1 De GF & J 240

• statutory position: Misrepresentation Act, 1967 (U.K.) and Misrepresentation

Act, 1983 (Trinidad & Tobago)

o rescission or damages in lieu of rescission is available where court

considers it equitable to do so

• nature of the misrepresentation;

• loss that would result if contract upheld;
• loss that rescission would cause to the other party.

b. undue influence
• under the head of constructive fraud, equity recognizes a wide range of
situations in which intervention is justified by reason of the defendant’s

DRE pg. 8
 influence or dominance over the claimant in procuring his execution of a
document or entering into an obligation

o equity’s intervention here is independent of the accuracy of the

information supplied by the claimant

• equity intervenes in such cases, not because – as in the case of

misrepresentations – the defendant has positively (albeit innocently) misled the
claimant on a particular or relevant fact or point, but because the defendant had
caused the claimant’s judgement to be clouded, with the result he failed to
consider the matter as he ought

o the right to set aside the transaction arises without the claimant having
to show how (s)he would have acted differently in the absence of undue
influence

• however, that question will be relevant to the quantification of the loss

see UCB Corporate Services Ltd v Williams (2003) 1 P & C.R 12

• actual threats or physical duress are remedies at both common law and equity,
but equity’s view is wider

o the forms and variety of methods considered by equity is diverse

see •Glister & Lee. Hanbury and Martin on Modern Equity, 20th ed., pp.
833 – 835: para. 29-008

• there are 2 categories of cases:

(i) those in which equity presumes undue influence7
and
(ii) where equity requires positive proof of influence having actually
been exerted

DRE pg. 9
 • in the first category, while the presumption does not apply to every
relationship of trust and confidence (per National Westminster Bank plc v
Morgan (1985)), it does arise in certain well defined cases such as parent and
child, guardian and ward, doctor and patient, solicitor and client and religious
adviser and pupil as in Allcard v Skinner (1887) (nun and mother superior) and
other situations where it is shown that a similar relationship of confidence
existed

o here equity requires positive evidence that no undue in fact exerted, and
it is not enough to show that there was no “sinister” conduct on the part of
the defendant
see • Hammond v Osborn [2000] WTLR 1125

Key case: Allcard v Skinner (1887)

• this is one of the leading cases in the area of undue influence and unjust
enrichment in English law – what Lord Browne7Wilkinson has now classed as
category 2A
• in 1867 Miss Allcard, an unmarried woman of 27 years sought a clergyman as
a confessor, who introduced her to Miss Skinner, a lady superior of a religious
order named "Protestant Sisters of the Poor” (of which the clergyman was a
director)
• as a requirement of joining the order, Miss Allcard had to observe vows of
poverty, chastity and obedience
• three days after becoming a member of the Protestant Sisters of the Poor, and
without independent advice, Miss Allcard made a will bequeathing all property
to Miss Skinner, and she made gifts of money and stock to the mother superior
on behalf of the sisterhood
• Miss Allcard left the sisterhood in 1879 and in 1884 claimed the return of the
stock; proceedings to recover the stock were commenced in 1885
• Lindley LJ, held that she was unduly influenced, but barred by laches from
getting restitution

DRE pg. 10
 • and in any case, she would only have been able to recover as much of the gift
as remained in the defendant’s hands after some of it had been spent in
accordance with her wishes

• per Lindley LJ
o What then is the principle? Is it that it is right and expedient to save
persons from the consequences of their own folly? Or is it that it is right and
expedient to save them from being victimised by other people? In my
opinion the doctrine of undue influence is founded upon the second of these
two principles. Courts of Equity have never set aside gifts on the ground of
the folly, imprudence, or want of foresight on the part of donors. The Courts
have always repudiated any such jurisdiction. Huguenin v Baseley 14 Ves
273 is itself a clear authority to this effect. It would obviously be to encourage
folly, recklessness, extravagance and vice if persons could get back
property which they foolishly made away with, whether by giving it to
charitable institutions or by bestowing it on less worthy objects. On the other
hand, to protect people from being forced, tricked or misled in any way by
others into parting with their property is one of the most legitimate objects
of all laws; and the equitable doctrine of undue influence has grown out of
and been developed by the necessity of grappling with insidious forms of
spiritual tyranny and with the infinite varieties of fraud

• per Cotton LJ
o First where the court has been satisfied that the gift was the result of influence
expressly used by the donee for the purpose; second, where the relations
between the donor and donee have at or shortly before the execution of the gift
been such as to raise a presumption that the donee had influence over the
donor

• the second category the question is whether a defendant has taken

advantage of his/ her position, or has been assiduous not to do so

see o Tate v Williamson (1866) LR 2 Ch. App 55

DRE pg. 11
 o many cases turn on whether a defendant discouraged independent legal
advice or proceeded in such a way to make it unlikely that the claimant would
think of taking it

see
• Baker v Monk (1864) 4 De G J & S 338
• Backhouse v Backhouse [1978] 1 WLR 243

• most of the illustrations relate to situations of special relationship existing

between particular people, and often involve settlement of property

o Lord Bridge in Re Brocklehurst (1978) summarized these cases as those in

which there is a “duty on the done to advise the donor, or a position of actual
or potential dominance of the done over the donor”

Key case: Re Brocklehurst (Deceased) [1978] Ch 14

• Brocklehurst was a strong0minded, autocratic and eccentric old man who was
used to commanding others and had served in the army in positions of
command
• he was impulsively generous and when he was in his eighties he lived alone
and became friendly with the owner of a local garage
• they had a common interest in shooting and Brocklehurst permitted the
defendant to shoot rabbits on the estate.
• Brocklehurst wrote to the defendant saying that he wished to give him the
shooting rights over his estate and pressed the defendant to instruct a solicitor
to draw up a lease, which Brocklehurst executed
• after Brocklehurst died, his executors brought an action against the defendant
to have the lease set aside on the ground of undue influence
• the Court of Appeal upheld the lease
o the Court of Appeal held that the nature of the relationship between the
deceased and the defendant was not one of confidence and trust such as
would give rise to a presumption of undue influence on the part of the
defendant, for the evidence established that the relationship was one of

DRE pg. 12
 friendship and did not indicate that it was such that the defendant had been
under a duty to advise the deceased or had been in a position of dominance
over him; on the contrary, it was the deceased who had tended to dominate
the defendant.

o but even if the relationship had been one that gave rise to a presumption of
undue influence, the defendant had rebutted the presumption for in the
circumstances the presumption was rebuttable not only by proof that the
deceased had been independently advised about the leases but also by proof
that the gift of the leases had been the spontaneous and independent act of
the deceased

• the House of Lords reviewed the doctrine in National Westminster Bank plc v
Morgan (1985), but it is considered that the case did not intend to lay down a
universal requirement

Key case: National Westminster Bank Plc v Morgan [1985] 1 All ER 821
• a bank manager who worked for National Westminster Bank came to Mrs
Morgan’s house to get her to sign a charge, which was going to provide
security for the refinance of the family home
• she received no independent advice, but signed the document
• when Mr Morgan died, and the bank later sought to enforce the charge
• Mrs Morgan resisted enforcement on the grounds that she had entered into
the documents acting under the undue influence of the bank
• at the Court of Appeal, Dunn LJ held that manifest disadvantage was not a
necessary ingredient of presumed undue influence, giving the example of a
solicitor buying a client’s house
o but there were no cases in which there was not a manifest disadvantage o
Mrs Morgan did not fully consent to the charge
• the House of Lords held that ‘evidence that the transaction itself was wrongful
in that it constituted an advantage taken of the person subjected to the
influence’ was necessary

DRE pg. 13
 • moreover, there was no confidential relationship between the wife and the
manager, and it never went ‘beyond the normal business relationship of
banker and customer’ so no presumption could arise
• Lord Scarman, who gave the only substantive judgment, said the following:
o [t]he fact of an unequal bargain will, of course, be a relevant feature in some
cases of undue influence. But it can never become an appropriate basis of
principle of an equitable doctrine which is concerned with transactions ‘not to
be reasonably accounted for on the ground of friendship, relationship, charity,
or other ordinary motives on which ordinary men act’ (Lindley L.J. in Allcard v
Skinner, at p. 185). And even in the field of contract I question whether there
is any need in the modern law to erect a general principle of relief against
inequality of bargaining power. Parliament has undertaken the task M and it is
essentially a legislative task M of enacting such restrictions upon freedom of
contract as are in its judgment necessary to relieve against the mischief: for
example, the hire-purchase and consumer protection legislation ... I doubt
whether the courts should assume the burden of formulating further
restrictions

• the case was often cited as proposition that the House of Lords required
"manifest disadvantage" in order to set aside a transaction for undue influence

o see for example the comments of Slade LJ in Bank of Credit and

Commerce International SA v Aboody [1992] 4 All ER 955

o however, Lord Scarman did not say that directly, only that: "...I know
of no reported authority where the transaction set aside was not to the
manifest disadvantage of the person influenced."

• in CIBC Mortgages plc v Pitt [1994] 1 AC 200 Lord Browne-Wilkinson

confirmed that Lord Scarman had not been seeking to lay down a general
principle, and that manifest disadvantage was not required for cases of actual
(as opposed to presumed) undue influence

DRE pg. 14
 • although Morgan has never been overruled or doubted, the law in this area
has been largely superseded by the decision in Royal Bank of Scotland plx v
Etridge (No 2) [2001] UKHL 44
• an important question which has arisen in the context of mortgages and
guarantees is whether the creditor should be prejudiced by any
misrepresentation or undue influence exercised by the debtor over a third
party who execute the mortgage or guarantee in favour of the creditor, or
agrees to give priority to the mortgage

o the principles were thoroughly reviewed in Barclays Bank plc v O’ Brien

(1994) where the creditor with constructive notice must satisfy specific
requirements in order to establish that reasonable steps were taken to
ensure that the third-party understood the transaction

Key case: Barclays Bank plc v O’ Brien (1994

• 151 Farnham Lane, Slough, was in Mr and Mrs O’Brien’s names jointly
• they had a £25,000 mortgage to a building society
• Mr Tucker, who worked for Barclays Bank plc, when the mortgage was
increased to £60,000 in 1981 made a note that Mrs O’Brien might be a problem.
In 1987 Mr O’Brien’s company, Heathrow Fabrications Ltd, was not doing well
and he agreed with the Barclays Woolwich branch to raise the company’s
overdraft to £135,000, reducing to £120,000 after three weeks, guaranteed by
Mrs O’Brien and secured on his matrimonial home with a second charge
• the Woolwich branch sent a message to the Burnham branch where Mrs
O’Brien was meant to sign saying to tell her of the full effects, but they did not
follow instructions
• Mrs O’Brien saw a document and did not read it. It said ‘obtain independent
legal advice before signing this letter’ but she just signed it and was not given
a copy
• by November 1987 the company was doing badly, and the demands for the
repayments were not met and possession was sought
• Mrs O’Brien argued she was unduly influenced into the contract and that she
was not bound

DRE pg. 15
 • at first instance, the judge ordered possession, saying a misrepresentation by
Mr O’Brien did not make the bank responsible.
• at the Court of Appeal, Purchas, Butler-Sloss and Scott LJJ held that it was
artificial to find undue influence when a bank ‘left it to the spouse’ (or another
relation) to obtain a signature for a charge, on the basis that the spouse was
acting as the bank’s agent.
• it held that relief would be given on the basis of a special equity in favour of
wives, from Turnbull v Duval: they said she only thought £60,000 was being
secured, and no more
• the result was upheld by the House of Lords, which held that the contract was
voidable for undue influence.
• in a key passage, Lord Browne1Wilkinson set out the basic categories of undue
influence as:
o(1) actual undue influence
o(2A) presumed undue influence from a special relationship
o(2B) presumed undue influence from facts raising suspicion of undue
influence

see
o CIBC Mortgages v Pitt [1994] 1 AC 200
o TSB Bank v Camfield [1995] 1 WLR 430
o Dunbar Bank v Nadeem [1998] 3 All ER 876

read also – Caribbean authorities on undue influence

o National Commercial Bank of Jamaica v Hew (2003) 63 WIR 183
o Dailey v Dailey (2003) 63 WIR 63
o Turnbull & Co v Duvall [1902] AC 429
o Dib v Karam (1963) 11 WIR 499
o De Freitas v Alphonso Modern Record Store Ltd (1991) 45 WIR 245
o Murray v Deubery (1996) 52 WIR 147
o Republic Bank Ltd v Plus Enterprises Ltd (1990) Ltd. (2009) High Court
of Trinidad & Tobago, No. 2839 of 1995, unreported [Carilaw TT 2009
HC 21]

DRE pg. 16
 • an important question which has arisen in the context of mortgages and
guarantees is whether the creditor should be prejudiced by any
misrepresentation or undue influence exercised by the debtor over a third party
who execute the mortgage or guarantee in favour of the creditor, or agrees to
give priority to the mortgage

o however, while the requirements laid down in O’Brien apply in full rigour to
post O’Brien situations, subsequent decisions has treated creditors
leniently in this regard

see • Royal Bank of Scotland plc v Etridge (No. 2) [2002] AC 773

Key case: Royal Bank of Scotland plc v Etridge

• in eight joined appeals, homeowners had mortgaged their property to a bank.
In all cases, the mortgage was securing a loan that was used by a husband for
his business, while his wife had not directly benefited
• the businesses had failed, and the wife had alleged that she had been under
undue influence to sign the security agreement
• therefore, it was contended that the security should be void over her share of
the home's equity and that because of this the house could not be repossessed
• the House of Lords held that in order for banks to have a valid security interest,
they must ensure that their customers have independent legal advice, if they
are in a couple where the loan will be used solely for the benefit of one person
• a bank is "put on inquiry" that there may be the risk of undue influence or
misrepresentation, if they transact for security over a domestic home, but the
loan will only benefit one person and not the other
• the solicitor who would give independent advice, however, could also be acting
as a solicitor for the bank, or both a husband and wife (or either partner)
• the solicitor would certify that he or she was satisfied that both borrowers had
given their fully informed and true consent, although if this ultimately turned out
to be wrong, the bank's security would not be affected
• instead, the possibility of an action in professional negligence against the
solicitor would arise

DRE pg. 17
 • this would be a personal action, and so it would not help the family stay in their
home
• Lord Nicholls held that if the banks ensured that the wife had had independent
advice, they could not be responsible for that advice being defective
• the presumption is rebutted if there is ‘expression of... free will’
• the idea of manifest disadvantage for presumed undue influence was rejected
but replaced (like the milder tone in Allcard v Skinner) with a transaction that
‘calls for explanation’, or one which ‘is not readily explicable by the relationship
between the parties.’
• in the ordinary case it is not ‘to be regarded as a transaction which, failing proof
to the contrary, is explicable only on the basis that it has been procured by the
exercise of undue influence.’
• that is because it is nothing out of the ordinary: you are put on inquiry whenever
a wife offers to stand as surety for her husband’s, or a company’s debts, where
the loan is only going to be for the husband’s purposes
• once on inquiry, the bank must ensure that the spouse has independent advice
and a certification that they have formed a truly independent judgment
• the case has become a leading one relevant for on the circumstances under
which actual and presumed undue influence can be argued to vitiate consent
to a contract
• another instance where equity intervenes is to set aside unfair transactions
made by “poor and ignorant” persons
o the doctrine does not apply to gifts
o it is not enough to how that the transaction was hard and unreasonable

• another instance where equity intervenes is to set aside unfair transactions

made by “poor and ignorant” persons

o 3 elements must be established as per Fry v Lane (1888), but the list is
not exhaustive (Cresswell v Potter (1978)

DRE pg. 18
 • first, that one party was at a serious disadvantage to the other by reason
of poverty ignorance or otherwise so that the circumstances existed of which
unfair advantage could have been taken

• secondly, that the transaction was at an undervalue

• thirdly, that there was a lack of independent legal advice

• another instance where equity intervenes is to set aside unfair transactions

made by “poor and ignorant” persons

o however the Court of Appeal has said that the doctrine itself needs
careful confinement if it is not itself to become an instrument of
oppression

see • Barclays Bank v Schwartz The Times, August 2 1995

• there are also other situations which call for relief, including oppressive hire
purchase regimes, other credit arrangements controlled by legislation and
statutory protections given to unfair contractual terms in the field of exemption
clauses

• relief has long been given against oppressive conditions in mortgages

see o Cityland and Property (Holdings) Ltd v Dabrah [1968] Ch 166

• for further information on undue influence

o Kodilinye & Kodilinye. Commonwealth Caribbean Contract

Law, 20th ed., pp. 163 – 1736 176 – 177

o Chandler & Browne. Law of Contract, pp. 133 – 1386 140

DRE pg. 19
undue influence and economic duress:
• there are 2 basic forms of duress – physical and economic

• in its original form, the common law only recognized violence or its threat
sufficient enough to avoid a contract

• economic duress on the other hand is a very recent innovation, perhaps

originating form Lord Denning’s theory of inequality of bargaining power and
from his judgements in cases such as D & C Builders Ltd v Rees (1966) and
Arrale v Costain Civil Engineering Ltd (1976)

• the parallel development of undue influence in equity and economic duress by

the common law, is used by the writer Sarah Worthington in her book Equity, 2
ed (2006) as an example of how equity and common law increasingly encroach
on each other’s territory, and there an argument that equity and the common
law should be fused

o both undue influence and economic duress look at questions of

knowledge and unconscionability, but approach similar situations through
increasingly difficult factual distinctions

undue influence and the wider concept of unconscionable bargains

• while English courts have generally been willing to set aside contracts only
where either undue influence or economic duress are established according to
well defined principles, some Caribbean judges like courts in Canada in
decisions such as Morrison v Coast Finance Ltd (1966) and Australia in
decisions such as Commercial Bank of Australia v Amadio (1983) have been
prepared to apply a broader principles of bargains (Kodilinye & Kodilinye, 2014
at 176)

• this approach has much in common with Lord Denning’s concept of ‘inequality
of bargain power’ thus enabling the court to set aside transactions in which

DRE pg. 20
 neither undue influence nor economic duress can be proved according to
substantive law principles (Kodilinye & Kodilinye, op. cit)

see
o Morrison v Coast Finance Ltd (1966) 55 DLR (2d) 710
o Commercial Bank of Australia v Amadio (1983) 151 CLR 447 o Singh v Singh
(1978) 25 WIR 410, at 419
o Gayadharsingh v Jones (1982) High Court, Trinidad & Tobago, No. 1969 of
1976, unreported [Carilaw TT 1982 HC 34]

• Kodilinye & Kodilinye (2014) posits that it is debatable whether the narrow
English approach, or the broader view in Canada and Australia is more suitable
in the Caribbean context

• on one hand, the large gap between the wealthier and poorer classes in most
Caribbean jurisdictions would suggest that the concept of unconscionable
bargains and inequality of bargain power would have a useful role to play

• on the other hand, application of the concept has the potential to cause
uncertainty and lead to instability in contractual relations, particularly as
different courts and judges are likely to have divergent views as to the meaning
and scope of unconscionability and improvidence in the contractual context

• it may be preferable to address issues of unconscionability through legislation

such as that relating to consumer protection and unfair contractual terms

Loss of the right to rescind

• formerly a contract entered into in reliance upon an innocent misrepresentation
could not be rescinded after the execution of the contract by the transfer of
property under it

• this rule was abrogated by the Misrepresentation Act, 1967 (U.K.), s. 1 and the
Misrepresentation Act, 1983 (Trinidad &Tobago), s. 2

DRE pg. 21
 • however, the court has discretion under s. 2(2) to award damages in lieu of
rescission in any case of innocent misrepresentation, if it would be equitable to
do so

o this discretion is most likely to be exercised where the contract has

been executed, than where it remains executor

• more generally, the right to rescind may be lost in any of 3 ways:

1. affirmation (and/or delay)

2. restitutio in integrum not possible
3. third party acquires rights

1. affirmation/delay

• where the party entitled to rescind affirms the contract – for example by taking
benefit under it, with knowledge of the fact giving right to rescind, and his/ her
legal rights (s)he will be taken to have waived that right

see o Clough v London and North Western Rail Co (1871) L.R. 7 Ex. Ch
26

• affirmation may be shown by words or acts, or may be indicated by lapse of

time – the remedy being subject to the doctrine of laches

see o Re Scottish Petroleum Co. (1883) 23 Ch. D 434

o United Shoe Machinery Co. of Canada v Brunet [1909] A C 330
o Leaf v International Galleries [1950] 2 KB 86
o Oakes v Turquand (1867) LR 2 HL 325
o Long v Lloyd [1958] 1 WLR 753
o Payman v Lanjani [1985] Ch 457

2. restitutio in integrum not possible

DRE pg. 22
 • a contract will cease to be capable of rescission if the parties can no longer be
restored to their original position

see
o Thorpe v Fasey [1949] Ch 649
o Erlanger v New Sombrero Phosphate Co (1873) 3 App. Cas 1218

• where the benefit obtained is other than money, this may affect the ability to
restore and therefore to rescind

• unlike the common law requirement of precise restoration, in equity substantial

restoration will suffice e.g. in the case of misrepresentation if the representee:

o returns the subject matter in its altered state; o accounts for profits;
and
o makes allowances for deterioration

see
o Newbigging v Adam (1886) 34 Ch. D 582
o Hutton v Hutton [1917] 1 KB 813
o Erlanger v New Sombrero Phosphate Co. (1878) 3 App Cas.1218
o Vigers v Pike (1842) 8 C1&F 562

• note also a case of undue influence

see o O’Sullivan v Management Agency & Music Ltd. [1985] QB 42
• any money paid or other property transferred under the contract must be
restored

o but precise restoration is not required, particularly in cases of fraud or duress

see
•Halpern v Halpern (Nos1 and 2) [2008] Q.B. 195

DRE pg. 23
 • equity is concerned to restore parties, and especially the defendant, to their
former positions as far as practically possible

• this might be achieved by, for example, ordering an account of profits and
making allowance for the deterioration of the property, or by ordering fair
compensation in equity where it is not possible to restore the property, no
(because its value has been lost) to account for profits.

• factors affecting restitution

o deterioration or decline in value – the right to rescind may be lost where

the subject matter of the contract can no longer be restored substantially or
at all to its original state inter alia where the assets have been disposed of

• it should be noted that the right to rescind is not lost if the deterioration is
through no fault of the party seeking rescission

• the right to rescind is also not automatically lost in cases where the
defendant has acted to his prejudice

• improvement in benefit to subject matter – the fact that the claimant has
benefited under the contract does not bar his right to rescind, provided the
defendant has not incurred expenses in conferring the benefit

3. third party acquires rights

• the right to rescind is lost, if an innocent third party acquires an interest under
the contract for value before the claimant seeks to set it aside

see
o Oakes v Turquand (1867) L.R. 2 H.L. 325
o Shogun Finance v Hudson [2004] 1 All ER 215
o Phillips v Brooks [1919] 2 KB 243

DRE pg. 24
 • the right to rescind is lost, if an innocent third party acquires an interest under
the contract for value before the claimant seeks to set it aside

o a remedy may still be available against the other party to the original
transaction

o there is no bar to rescission if the third party is a volunteer – for example

the defendant’s trustee in bankruptcy

• where the claimant is guilty of fraud, the defendant may plead the defence of
fraud without restoring what he obtained under contract

The remedy of rectification

• rectification is a discretionary equitable remedy whereby an instrument, which
does not accord with the intention of the parties to it, may be corrected

• rectification – as distinct from amendment – arises where one or all parties to a

written agreement contend that the contractual document does not accurately
reflect their intention and accordingly it should be rectified so that it does

• an order for rectification is an equitable remedy and the usual discretionary

considerations apply

• an overriding factor in granting the order is that the document’s terms, without
rectification, would put the applicant(s) at risk or prejudice and to do otherwise
would be unconscionable
o this discretion is most likely to be exercised where the contract has been
executed, than where it remains executor

The nature of the remedy of rectification

• rectification operates as an exception to the parol evidence rule, whereby oral
evidence is not admissible to alter a written instrument

DRE pg. 25
 • it must be emphasized that the court does not rectify a mistake in the contract
of itself, but only a mistake in the instrument recording the contract or other
transaction

• it must be very clearly shown that the parties had come to a genuine agreement
and that the instrument failed to record it

for example, where both a written agreement to sell land and the ensuing
conveyance incorrectly described the land which it had agreed to sell, it
is possible to obtain rectification on proof of the real oral agreement

see • Craddock Bros v Hunt [1923] 2 Ch. 136

• when rectification is ordered, a copy of the order may be endorsed in the

instrument – there is no need to execute a new document

• rectification is retrospective, and affects steps taken by the parties in the

meantime

• the instrument remains binding in its uncorrected form until rectification is

actually ordered

o the claimant may obtain rectification and specific performance in the same
action

• rectification must be distinguished from the court’s power to correct an obvious

error as a matter of construction

o this jurisdiction is one based on the duty of the court to construe

documents correctly, and is not a jurisdiction to rectify

• the nature of the mistake may be founded in either common mistake or

unilateral mistake

DRE pg. 26
 1.common mistake

• this jurisdiction is one based on the duty of the court to construe

documents correctly, and is not a jurisdiction to rectify

2.unilateral mistake

• this jurisdiction is one based on the duty of the court to construe documents
correctly, and is not a jurisdiction to rectify

1. common mistake

• the general rule is that rectification requires a mistake common to both parties,
whereby the instrument records the agreement in a manner contrary to the
intention of both

o it must be shown that there is some prior agreement, although not

necessarily an enforceable contract, whereby the parties expressed a
common intention regarding the provisions in question

o it must be shown that the common intention continued until the execution
of the instrument

o rectification will not be possible where the instrument departs from the prior
agreement because the parties had agreed to vary the terms
see
• Murray v Parker (1854) 19 Beav. 305
• Joscelyne v Nissen [1970] 2 QB 86
• Breadabane v Chandoes (1837) 2 My. & Cr. 711

• next, it must be established that the instrument is not in accordance with the
true agreement of the parties and that if rectified in the manner claimed, it will
represent the agreement

DRE pg. 27
 o only the actual agreement of the parties is relevant, not what they would have
agreed if they had not been under a misapprehension

see
•Frederick E Rose (London) Ltd v William H Pim Jr & Co Ltd [1953] 2 Q.B 40
•London Regional Transport v Wimpey Group of Services Ltd (1987) 53 P & C
R 356

• the mistake is usually one of fact, but relief may be possible where
the mistake is of law
see
o Re Butlin’s Settlement Trust [1976] Ch 251
o Whiteside v Whiteside [1950] Ch 65

2. Unilateral mistake

• where one party incorrect records a term to the agreement but it is bona fide
accepted as it is written by the other party, the mistake is unilateral, and there
is no ground for rectification

see
o Lovesy v Smith (1880) 15 Ch D 655
o Riverlate Properties Ltd v Paul [1975] Ch 133
o A Roberts and Co Ltd v Leicestershire CC [1961] Ch 555
o Bates (Thomas) & Son Ltd v Wyndhams (Lingeries) Ltd [1981] 1 WLR 505

• unilateral mistake can only give rise to rectification in cases of fraud or upon
the principle in A Roberts and Co Ltd v Leicestershire CC (1961) – where the
modification was particularly appropriate, and if the contract has been
rescinded or held void at law, the claimant would have been forced to bring a
restitutionary claim

DRE pg. 28
 o however rectification will be ordered if a party to the contract at the
time of its execution if (s)he

• knowingly or willingly shuts his eyes to the other party’s mistake

• guilty of fraud or other unconscionable conduct

• where the transaction is unilateral, a unilateral mistake is sufficient

• in cases of customary terms

o however rectification will be ordered if a party to the contract at

the time of its execution if (s)he

o a document may be rectified if it fails to record terms implied by

customs e.g. a force majeure clause even where there is no evidence
that parties intended to incorporate such terms

Proof of the mistake

• the burden of proof on the party seeking rectification is a heavy one

o according to Crane v Hegeman-Harris Co Inc (1939) – an older authority, the

claimant must establish the mistake with a “high degree of conviction”

o a more recent description given in Joscelyne v Nissen (1970) is “convincing

proof”
see • Westminister Properties v Mudd [1959] F Ch 129

• oral evidence is admissible to prove the agreement, and there is no need to

show anything on the nature of the error on the face of the instrument

• it is no objection that the transaction is one required by statute to be evidenced

in writing – it suffices that the rectified instrument will comply with the statute

DRE pg. 29
 see o Craddock Bros v Hunt [1923] 2 Ch. 136

• in case of a settlement, the settlor’s evidence alone or even a mere perusal of

the document may suffice to establish the mistake, but the court is slow to act
without the support of other evidence such as any written instructions given by
the settlor prior to the execution of the settlement

• in the case of a will, extrinsic evidence of the testator’s intentions is admissible,

although the standard of proof is on the balance of probabilities, convincing
proof is needed to rectify a formally executed will

see o Re Segelman [1996] Ch 171

The procedure for rectification

• where rectification is granted the court will give effect to what was proved to
have been the common intention of the parties at the time of execution

• this will involve the deletion and or insertion clauses e.g. inserting the correct
date in the document and deleting the mistaken one
see
o Roberts & Co. v Leicestershire CC [1996] Ch. 555
o Joscelyn v Nissen supra

• in cases of ambiguity, extraneous evidence may be admitted to identify the

correct intention of the parties

Instruments which can be rectified

• the remedy is widely available, being applicable to:
o leases and other conveyances of land
o insurance policies
o bills of exchange
o many other instruments see

DRE pg. 30
 • Glister & Lee. Hanbury and Martin on Modern Equity, 20th ed., pp. XX– XX :
paras. XXXX

• rectification can also be obtained on a voluntary deed such as a settlement, a

unilateral deed of variation or a deed of appointment executed by trustees

• formerly it was not possible to rectify a will except in the case of fraud, although
the court could, as a matter of construction, correct a manifest error in drafting

o s. 20 of the Administration of Justice Act, 1982 (U.K.) provides that a will may
be rectified if in consequence of a clerical error of a failure to understand
instructions

Defences to rectification:
• the remedy of rectification, which like other equitable remedies is discretionary,
will not be given where

1. a bona fide purchaser for value without notice has acquired an interest under
the instrument
2. laches or acquiescence will bar the claim
3. if the contract is no longer capable of performance
4. the contract is fully performed under the judgement of the courts

Tutorial questions:
Beatrix, a firm believer in psychic phenomenon, was recently devastated by the
sudden death of her mother. By her will, her mother bequeathed to Beatrix a sizeable
sum of money, as well as her business Ghostbusters & Co. Beatrix is so bereft, that
she finds it difficult to function in the weeks following her mother’s death. As a result,
she decides to withdraw from life, and accordingly makes two decisions.

First, she decides to communicate with the spirit of her mother through her long-
standing clairvoyant Skyla Spook. Skyla tells Beatrix that her mother wishes her to
donate BJS $ 100,000.00 to the Shady & Suspect Spirit Society – a company which

DRE pg. 31
“promotes enlightenment and spiritual peace.” Beatrix donates the money by gift under
seal.

Secondly, Beatrix allows her husband Bernard to run the day5to5day business of
Ghostbusters & Co. Bernard decides to expand the business, and recognises the best
way to do this is to increase the existing mortgage held at the Broken Bank. He What’s
Aps Graeme, an old school friend, who works at the Broken Bank. Graeme tells
Bernard that he can only increase the mortgage if Beatrix co5signs the relevant
documents. Bernard presents the relevant documents to Beatrix under the pretext that
they are payments to the favourite charity of her late mother. Beatrix, who is meditating
at the time, does not read the form, which includes a statement to the effect that all
signatories have received independent legal advice

Three months later, Beatrix feels better, and finds out that Skyla Spook is the director
of the Shady & Suspect Spirit Society. Moreover, she is horrified when she discovers
the truth about the document that Bernard asked her to sign.

With reference to decided cases, advise Beatrix whether she has grounds to
avoid either of the two transactions.
Taken from the April/May 2017 exams
Past Examination Question
Boomer and Blottie jointly own their house at 242 Red Road in the gated community
of Colourful Copse. Boomer also owns an upscale restaurant which he wishes to
expand. He ask his bank manager, Monique Monnipenni for a loan of BDS$
500,000.00 and Monique says that a loan will be possible, but only if the mortgage on
the house is extended to provide security. Monique tells Boomer that because the
house is owned jointly, Blottie will have to agree to the transaction. However, because
he knows that Blottie will not be keen on the idea, Boomer tells her that the loan is
only for “no more than BDS$ 50,000.00” to buy a signature chocolate fountain
designed by renowned celebrity chef Wolpang Wuck. Monique then advises Blottie
that she can only sign if she has received advice from an attorney, and indicates that
her daughter Lucinda Lawless is capable of assisting in this regard. Blottie almost
always takes Boomer’s advice on financial matters, and so, when Lucinda says that
“all seems fine to me,” Blottie willingly signs the mortgage deed.

DRE pg. 32
Boomer is now bankrupt, and the bank is seeking to enforce its security.

With reference to decided cases, advise Blottie on whether she has any grounds
to resist the bank’s actions.

taken from the April/May 2016 exams

DRE pg. 33