Rescission

Question 1

When is it ordered, what is its effect and what is its aim?

Answer 1

When is it ordered? When there’s a defect vitiating a person’s decision to enter a transaction.
Effect? The transaction is void ab initio: all future obligations cancelled and all benefits restored.
Aim? To restore the parties to the position they were in before they entered the transaction.

Question 2

Undue Influence

AIB plc v Rostaff Property [2017]: - Shied away - Henchy J

Answer 2

Barrett J noted courts have shied away from defining UI, but Henchy J
described the concept as embracing ‘unfair, undue and unreasonable mental control over another’.

Question 3

Undue Influence - Actual UI

O’Flanagan v Ray-Ger Ltd [1983]

Answer 3

recognised the categories of UI as set out in Allcard v Skinner [1887]:
(1) Actual Undue Influence (Class 1): where it can be expressly proved that undue influence was exercised over the donor by the donee.
(2) Presumed Undue Influence (Class 2): where relations bw donor and donee have at or shortly before
the execution of a gift been such as to raise a presumption that the donee had influence over the donor

Question 4

Undue Influence - Actual UI

O’Flanagan v Ray-Ger Ltd [1983]

Answer 4

• A + B only shareholders in co. A terminally ill. B aware. B more dominant personality. Brought A to pub and proposed agreement that when one dies, their shares will pass to the other.
• Not to A’s best interests as always unlikely he’d survive B. Set aside as B exercised UI over him.

Question 5

Undue Influence - Presumed UI

Barclays Bank v O’Brien [1993]

Answer 5

identified two sub-categories of presumed undue influence:
(a) Class 2A: Presumption arises automatically based on their confidential relationship and the transaction was to their manifest disadvantage.
(b) Class 2B: Presumption arises when a relationship is proven to be one of trust and confidence and the
transaction was to their manifest disadvantage.

Question 6

Undue Influence - Presumed UI - Class 2A: Presumed Relationship + Proof of Manifest Disadvantage

Give examples of presumed relationships and cases?

Answer 6

(i) The transfer of property by a child to his parent
McMackin v Hibernian Bank [1840]
 M signed guarantee in favour of mum who had debts. M lived with mum. Just turned 18. Despite transaction being explained to her, held she’d got no independent advice thus rescinded.
(ii) The transfer of property by a client to his solicitor: Lawless v Mansfield [1841]
(iii) The transfer of property by a pupil to his religious advise: Allcard v Skinner [1887]: nun + mother sup
(iv) The transfer of property by a patient to his doctor
(v) The transfer of property by a beneficiary to his trustee
Irish Bank Resolution Corp v Quinn [2011] Confirmed husband and wife do NOT fall under class 2A.

Question 7

Undue Influence - Presumed UI - Class 2A: Proof of Manifest Disadvantage

Allcard v Skinner [1887]: - readily explicable

Answer 7

If undue influence is to be presumed, the transaction must not be readily explicable on a basis other than undue influence. more disadvantageous the transaction, more likely it’s not so explicable.

Question 8

Undue Influence - Presumed UI - Class 2A: Proof of Manifest Disadvantage

Cheese v Thomas [1994]

Answer 8

Old man paid neph life savings for right to live in house he’d just sold him.

Question 9

Undue Influence - Presumed UI - Class 2B: Must Prove Relationship of Trust and Confidence + Manifest Disadvantage

General rule?

Answer 9

Class 2B presumption of UI arises in respect of a transfer of property but only if:

(i) The transferor had trust and confidence in the transferee; and
(ii) The transaction was manifestly to the disadvantage of the transferor.

Question 10

Undue Influence - Presumed UI - Class 2B: Must Prove Relationship of Trust and Confidence + Manifest Disadvantage

Gregg v Kidd [1956] - stroke

Answer 10

• Presumption arose in respect of transfer of property by a man to his sister and her son.
• G had serious stroke, entirely dependent on sister. Feared his future if his sister stopped caring for him

Question 11

Undue Influence - Presumed UI - Class 2B: Must Prove Relationship of Trust and Confidence + Manifest Disadvantage

Carroll v Carroll [1998]:

Answer 11

Presumption arose in respect of a transfer of property by a man to his son.

Question 12

Undue Influence - Presumed UI - Class 2B: Must Prove Relationship of Trust and Confidence + Manifest Disadvantage

Prendergast v Joyce [2009] - Widow - Alzheimers

Answer 12

• Presumption arose in respect of transfer of property by woman (now deceased) to nephew-in-law (D)
• Less than a week after her husband’s death, D brought her to two banks where , at D’s request, accounts previously held in joint names of her + husband were transferred into joint name of her + D
• 3 weeks later, she was admitted into a respite home for people with Alzheimers. Held presumption not
  rebutted: as hadn’t got independent legal advice, didn’t understand the nature +effect of the transaction

Question 13

Undue Influence - Spouses

Barclay’s Bank v O’Brien [1994]

Answer 13

• H + W execute second mortgage over family home as security for H’s company (W no interest in it)
• Court suggested that it is easier to raise the 2B presumption if there’s an emotional or sexual relationship between transferor and transferee i.e. easier to prove trust and confidence reposed in H/W

Question 14

Undue Influence - Spouses

Bank of Nova Scotia v Hogan [1996]: - women’s capabilities.

Answer 14

Criticised in Ireland in the SC here (women’s capabilities).

Question 15

Undue Influence - Spouses

Royal Bank of Scotland v Etridge [2001]:

Answer 15

HOL thought a transaction where W agrees to guarantees H’s

business debts is not one calling for explanation as W’s interests often bound up inextricably w H’s fortunes

Question 16

Undue Influence - Rebutting the Presumption of Undue Influence

Carroll v Carroll [1998] - 2 factors

Answer 16

• Son convinced dad to transfer pub into his name. Dad mentally alert but largely dependent on son. Only advice was solicitor that’d been acting for the son. Accepted presumed UI. Onus on D to rebut.
• Held the manner in which the presumption may be rebutted relates to two main issues:
  (a) Whether independent legal advice has been received (noted need not be legal)
  (b) Whether it can be shown the decision to make gift/transfer was a spontaneous and independent act or that donor acted of his own free will.

Question 17

Undue Influence - Rebutting the Presumption of Undue Influence

MC v FC [2014]:

Answer 17

MacMenamin J said the onus can be discharged by evidence showing the gift was the independent and well understood act of a person in position to exercise free judgment.

Question 18

Undue Influence - Third Parties/Banks

Barclays Bank v O’Brien [1994] UK - Idea of enquiry

Answer 18

• If B knows of certain facts that put him on enquiry to the possible existence of UI between H + W and it fails to make such enquiry or take reasonable steps, it has constructive notice of Ws right to rescind
• B’s put on enquiry of W’s right to rescind if transaction’s on its face not to financial advantage of W.
• Reasonable steps incl. insisting W hold a private meeting w B’s solicitor and explain the transaction.

Question 19

Undue Influence - Third Parties/Banks

Royal Bank of Scotland v Etridge [2001] - Principles

Answer 19

] set out a number of principles for banks + solicitors:

(a) Bank is put on enquiry whenever a wife offers to stand as a surety for her husband’s debts
(b) No need to show bank was aware of the relationship giving rise to presumption of influence
(c) No absolute obligation on bank to have private meeting w her provided they take other steps to satisfy themselves that she’s been appropriately advised e.g. by confirmation from a solicitor
(d) Solicitor should, as a minimum: (1) Explain nature of doc + consequences i.e. can lose home, bound once you sign (2) point out risks incl. amt of liability (3) State clearly she’s a choice (4) Check if she wishes to proceed + if same solicitor as husband’s, ask if she wants a different one

Question 20

Undue Influence - Third Parties/Banks - Irish Approach

.3(1) Family Home Protection Act 1976

Answer 20

Where a spouse, w/o consent of other, purports to convey any interest in the fam home to any person except the other spouse, the purported conveyance shall be void.

Question 21

Undue Influence - Third Parties/Banks - Irish Approach

Bank of Ireland v Smyth [1993] - Misunderstood

Answer 21

• W signed consent form during meeting w bank manager (H present) lasting 15 mins.
• Bank manager failed to explain to W she could lose home if repayments not made + didn’t suggest she get independent legal advice. In fact, W thought it only affected the surrounding lands + not her home.
• SC upheld HC’s finding that her consent was not valid for s.3 i.e. it wasn’t fully informed consent.
  (a) The validity of the consent is only dependent on the state of knowledge of the spouse not B
  (b) B had constructive notice of her lack of knowledge as any reasonable inquiry would’ve discovered she misunderstood.
• Rejected that there is a duty to explain the nature to W, just said it was in the B’s interest to do so.

Question 22

Undue Influence - Third Parties/Banks - Irish Approach

Bank of Nova Scotia v Hogan [1996] - Need UI - Oddly LA was okay

Answer 22

• H borrowed money from B & as security took an equitable mortgage over a property owned by W
• Before transaction, solicitor explained to W that b would be able to sell her property if H defaulted.
• Solicitor happened to be one that acted for both H and W and the bank.
• SC held two things needed for s.3 consent: (a) B must in its own interest ensure the necessary statutory consent is forthcoming + (b) the consent is true consent (free exercise of the independent will)
• Held fatal flaw her was there was no UI exercised: notice irrelevant as if no UI exerted.
• Held the legal advice here was good and independent (odd)

Question 23

Undue Influence - Third Parties/Banks - Irish Approach

Ulster Bank v Fitzgerald [2001] - UI Accepted - No notice

Answer 23

• W guaranteed debts of business her + fam dependent on. Told she could get advice, but signed on spot
• Accepted evidence of UI: W feared if she didn’t do it, existing marital probs would be aggravated.
• BUT held B not on notice as W had financial stake in H’s business (even though not a shareholder or director): no obligation on B to urge her to get advice.
• B only on inquiry if aware of info re parties’ relationship that’d increase likelihood of UI

Question 24

Undue Influence - Third Parties/Banks - Irish Approach

Ulster Bank v Roche [2012] overruled Fitzgerald - Hairdresser Director - Psych UI - Non-commercail element

Answer 24

• 2nd D guaranteed debts of 1st D’s company. 2D director but not shareholder in the co. 2D a hairdresser in relationship w 1D. Psychologist’s evidence given that 2D under 1D’s UI: abusive relationship.
• Test: (1) Was D acting under UI of another? (2) Did B have actual/constructive notice of the UI?
• Held B put on inquiry where it’s aware of facts that suggest there may be a non-commercial element to a guarantee. Once on inquiry, B is obliged to take at least some measures to ensure the surety is openly and freely agreeing to provide the security. Not done here so had constructive notice of UI.
• Unfortunately, Clarke J didn’t say what the measures were, but in a 2009 case Moorview Developments he had said, obiter, he was prepared to accept Etridge applied here. But did not fully adopt it in this case.

Question 25

# Undue Influence - Third Parties/Banks - Irish Approach ACC Bank v Connolly & Connolly [2017] - Roche/Etridge - UI then steps

Answer 25

- 2D provided guarantee for loans to son (1D). No claim of UI made by 2D. HC held reasonable steps taken for one guarantee, but not for the other as no independent legal advice was given. - Held while Roche and Etridge set out principles in relation to the measures a B should take to ensure that UI had not arisen, but these only applied in circumstances where a finding of UI had been made. - Suggests unless a guarantor has an arguable defence that it gave the guarantee under UI, the creditor doesn’t have a positive obligation to ensure or check that a guarantor got independent legal advice.

Question 26

# Undue Influence - Third Parties/Banks - Irish Approach Ulster Bank v De Kretser [2016] supports Connolly - Business Woman/Director

Answer 26

- No evidence of UI where W gave guarantee for loan to H’s business. Held she was an experienced businesswoman and although she didn’t stand to gain from the loan, she was a director of the business

Question 27

# Undue Influence - Third Parties/Banks - Irish Approach Bank of Ireland v Curran [2016] Suggests a two-stage test for UI:

Answer 27

(a) But for the UI she wouldn’t have entered the guarantee | (b) That the creditor had actual or constructive knowledge that the guarantee was procured by UI.

Question 28

# Undue Influence - Third Parties/Banks - Irish Approach ACC Loan Management v Sheehan [2017] No UI - Brother - Precondition not satisfied

Answer 28

- D guaranteed loan to brother’s company. Pleaded no indep legal advice. Defence of UI not accepted. - At full hearing, held the guarantee was void as D hadn’t received indep legal advice before signing - Here, it was a precondition of the loan that the B would get a letter from the guarantor solicitor confirming the guarantor received indep legal advice thus the bank waived their own requirement by relying on assurances from the guarantor’s brother solicitor. - However, the solicitor wasn’t independent as required under terms of the guarantee + the advice was wholly deficient: never advised the whole farm and livelihood was potentially at risk.

Question 29

# Undue Influence - Third Parties/Banks - Quality of Advice Carroll v Carroll [1999]:

Answer 29

Refused to rebut presumption of UI on basis the solicitor was primarily working for the debtor (daughter) + the guarantor (dad) had no opportunity to consult with him alone. Insufficient advice

Question 30

# Undue Influence - Third Parties/Banks - Quality of Advice McCrystal v O’Kane [1986]:

Answer 30

Advice sufficient as the solicitor had instructed the weaker part on 2 occasions that he should be properly separately represented + drew attention to the advantage to the P in the transaction

Question 31

# Unconscionable Bargain General Rule?

Answer 31

Transaction can be set aside where one dominant party takes advantage of weaker one and does so unfairly w/o using duress or UI. Exploitation of donor by donee. Parties have ‘not met upon equal terms’.

Question 32

# Unconscionable Bargain Boustaney v Piggott [1995] TEST for UB:

Answer 32

(a) There must be a bargaining impairment between the parties (b) The other party must have exploited that disadvantage (c) The transaction is manifestly improvident to the weaker party (d) The weaker party lacked adequate advice regarding the transaction

Question 33

# Unconscionable Bargain Grealish v Murphy [1946]

Answer 33

- Old farmer lived on his own and was mentally deficient. Left property to younger man he knew. - Transaction v disadvantageous to him. Although told the nature of it by a solicitor, didn’t appear o understand it. Solicitor also unaware of mental issues so advice inadequate. - Held set aside: hadn’t met on equal terms + manifestly disadvantageous/improvident to him

Question 34

# Unconscionable Bargain AIB v Rostaff Property [2017] - distinction between UI & UB

Answer 34

Considered the difference bw UI and unconscionability/improvidence - Whether they sit separately is a moot point in the academic community but there’s distinction between the two concepts. UI’s focus is on the alleged victim’s consent whereas unconscionability focuses on the impugned actions of the persons who perpetrated the unconscionable.

Question 35

# Misrepresentation Northern Bank Finance Corporation v Charlton [1979]

Answer 35

(a) A contract may be rescinded on the ground of fraudulent misrepresentation (b) Rescission may not be ordered if it’s not possible to restore the parties, at least substantially, to the positions that they were in before they entered into the transaction.

Question 36

# Misrepresentation - Innocent Misrep Gahan v Boland [1983]

Answer 36

- If an IM is made and the transaction is executory, rescission may be granted if P proves: (a) D made the innocent misrepresentation with the intention of inducing P to act on it (b) P did in fact act or rely on the innocent misrepresentation. - Rescission won’t be granted on foot of an IM if a transaction is executed.

Question 37

# Mistake General rule?

Answer 37

At CL some mistakes prevent a contract coming into existence so equity can’t intervene. Others don’t e.g. they reach agreement but share a mistake as to a fact underlying the formation of a contract  Common Mistake.

Question 38

# Mistake - At Common Law Bell v Lever Bros [1932]

Answer 38

- B paid a lot of money on dismissal. Unbeknownst to both, it could’ve been ended for free. - LB tried to have the agreement deemed void on grounds of common mistake as it was v diff to what they thought they were receiving. Rejected: mistake not sufficiently fundamental i.e. an essential difference - Bad bargain, but entered compensation package + got it. Not an essential difference.

Question 39

# Mistake - At Equity Solle v Butcher [1950]

Answer 39

- Both believed bc flat renovated it was no longer rent-controlled. Mistaken. P paid extra rent for 2 yrs. - Held common mistake not suff fundamental to render it void i.e. S contracted for flat and got one - Equity intervened: held mistake could be rendered voidable, so court had discretion to set it aside - Held T had choice: surrender lease entirely or stay in possession at full rent (i.e. rent-control) Bell and Solle left the law in uncertain state. Resolved by: Great Peace Shipping Ltd v Tsavliris Salvage Ltd [2002]

Question 40

# Mistake - At Equity Greate Peace Shipping Ltd v Tsavliris Salvage Ltd [2002]

Answer 40

- Ship damaged in ocean and another ship (GP) asked by the salvage co (T) to deviate from its course to help the stricken ship until T could organise the salvage of the ship. - T entered agreement w G on mistaken understanding it was 35 miles away but really 410. When T found out, it didn’t immediately try end the contract as common mistake, but checked to see if other closer ships. - Held mistake was material but not suff fundamental. T got what it contracted for: a charter ship. - One indication why the location wasn’t a crucial mistake was bc T didn’t seek cancel immediately - No jurisdiction to grant rescission where the contract is valid and enforceable in common law.

Question 41

# Mistake - At Equity Intrum Justitia v Legal & Trade Financial Services [2005]

Answer 41

In Ireland, the courts still follow Bell and Solle: Still possible for contract to be rescinded in equity even if doesn’t meet the test in Bell ‘essential difference’. - IJ contracted to buy subsidiary of L. Neither knew 3rd party had embezzled funds from it. - Strict approach: held this not a fundamental common mistake as the effect of the fraud didn’t mean the subject matter of the share purchase agreement was essentially different. - Bought co w objective of accessing client base, employees and revenue. None of these affected.

Question 42

# Mistake - Unilateral Mistake Monaghan CoCo v Vaughan [1948

Answer 42

indicates it can be - Unilateral mistakes arise where one of the parties is not ad idem with the others and thus there’s no real agreement between them. In such a case, rescission may be appropriate.

Question 43

# Mistake - Unilateral Mistake Gibbon v Mitchell [1990]:

Answer 43

A voluntary disposition may be set aside in equity on grounds of unilateral mistake: Restrictive formula: a disposition could be set aside so long as the mistake is as to the effect of the transaction itself and not merely as to its consequences. Ireland follows this case