Topic 6 (Recession): Case Law

Question 1

Northern Bank Finance Corporation Ltd v Charlton [1979] IR 149

Answer 1

restitutio in integrum

Plaintiff bank loaned a sum of money to the defendant for the purposes of purchasing shares for a public company;
Plaintiff failed to disclose to the defendant that another party to the transaction withdrew three-quarters of the amount they intended to contribute to the purchase of the company;
Defendant became unable to pay back the loan, plaintiff sought to enforce the loan agreement against the defendant;
Defendant argued they were induced into the agreement by fraudulent misrepresentation and sought rescission;
Both the High Court and Supreme Court dismissed the plaintiff’s claim, High Court ordered rescission, the Supreme Court remitted the matter back to the High Court for an assessment of damages as restitutio in integrum could not be applied where the money had been received by the plaintiff from the defendants as their agent and applied in the course of the agency or (b) to shares acquired by the defendants or their holding company as a result of contracts made with third parties.

Question 2

Salt v Stratstone Specialist Ltd [2015] 2 CLC 269:

Answer 2

PRACTICABLY JUST

Case concerned an appeal of a decision by the defendant (a car dealer) where rescission was granted of a contract where a purchaser bought to car as “brand new” where it in fact turned out to be not new;
District Court judge did not grant rescission as restitutio in integrum was judged to be impossible – car had been registered and could not be unregistered, also there had been a passage of time during which the car had depreciated in value which could not be overcome;
On appeal, rescission was granted as rescission could be granted, prima facia, if “practical justice” could be done;
“A court of equity, contemplating rescission, could order an account and/or an inquiry to determine the terms on which restitution should be made. The normal remedy for misrepresentation was rescission, which should be awarded if possible. Rescission was prima facie available if ‘practical justice’ could be done. If practical justice required Stratstone as representor to be compensated for depreciation or for use of the car, it was for Stratstone so to assert and prove. The absence of evidence about depreciation or the value of the use of the car should not operate to the disadvantage of the representee. The purchaser was entitled to rescind the contract and recover the purchase price. Damages of £3,250 were not sufficient compensation for the wrong which he had suffered.”

Question 3

Bank of Ireland Finance Corporation Ltd v Charlton [1979] IR 149;

Answer 3

fraudulent representation

Representation by the plaintiff to the defendant that an investor had deposited £200,000 with the plaintiff in accordance with an agreement. In fact only £150,000 had been deposited and so the knowledge of this shortfall was deemed to be fraudulent on the basis that the defendant would not have proceeded with the joint enterprise if he knew this;
A failure on behalf of the plaintiff to disclose to the defendant that the same investor as above had reduced their investment to a sum of £25,000. it was held by the Court that the failure of the plaintiff to disclose to the defendant the true position of the investors account constituted a representation (which was false) that the condition of this account was in accordance with the arrangement that had been made between the promoters inter se and the plaintiff bank;
After an inquiry by the defendant as to whether all agreed contributions were in, the defendant was informed on a three-way call that all money was in. it was held this representation was false and fraudulent as the above-referenced investors contribution was not made up of £100,000 cash deposit but was made up of £47,000 worth of Mooney shares and a £53,000 loan from the plaintiffs;
A further fraud occurred when the plaintiff suggested the defendant buy-out the above-referenced investors shares in a holding company, with a fraud occurring where the plaintiff assured the defendant that the investor was in no way indebted to the plaintiff, which was false and fraudulent.

Question 4

McCormack v McCormack [2017] IEHC 733

Answer 4

plea for recission on the grounds of fraudulent misrepresentation being rejected

Parties were husband and wife who executed an agreement for the plaintiff/wife to relinquish her shares in a nursing home business for consideration;
Plaintiff seeks declaration claiming agreement was void on the grounds of, amongst other reliefs sought, rescission for fraudulent misrepresentation;
This relief was denied on two distinct grounds: that there was no material misrepresentation by or on behalf of the defendant to the plaintiff, whether fraudulent or innocent, or by assertion or omission; and that restitutio ad integrum was practically impossible;

Question 5

Brownlie v Campbell (1880) 5 App Cas 925;

Answer 5

innocent misrepresentation

was previously thought that relief can only be granted if the agreement is not complete

“Passing from the stage of correspondence and negotiation to the stage of written agreement, the purchaser takes upon himself the risk of errors. I assume them to be errors unconnected with fraud in the particulars, and when the conveyance takes place it is not, as far as I know, in either country the principle of equity that relief should afterwards be given against that conveyance, unless there be a case of fraud, or a case of misrepresentation amounting to fraud, by which the purchaser may have been deceived.”

This decision was endorsed in Ireland in Lecky v Walter [1914] 1 IR 378.

Question 6

Gahan v Boland [1984] WJSC – HC 2191

Answer 6

Case concerned innocent misrepresentation by the defendant of the location and affect of a planned motorway to the plaintiffs, who were seeking to purchase a property from the defendant that ultimately became affected by the construction of the M50;
During negotiations for the purchase, the plaintiff raised this issue of a motorway, to which the defendant said it would not be constructed in our lifetime and that it would be too expensive to build a motorway through the glen;
Rescission ultimately granted in this instance

Question 7

Intrum Justitia BV v Legal and Trade Financial Services Ltd [2005] IEHC 190

Answer 7

innocent misrepresentation

Matter concerned plaintiff seeking rescission of a contract for the sale of shares wherein it was agreed between the parties that all accounts were properly and accurately kept only for embezzlement to be uncovered at the defendant company;
Rescission sought on the basis that no purchaser with knowledge of embezzlement would purchase the shares;
Defendant claimed there had been a mutual mistake by both parties and that the plaintiff should only be entitled to a reduced share price;
Rescission not granted, instead specific performance and a reduction in price;
Case highlighted how for innocent misrepresentation, the misrepresentation did not have to be the main consideration in the mind of the representee but it must be part of the underlying basis upon which the representee proceeds;

Question 8

Cooper v Phibbs [1867] LR 2 HL

Answer 8

common mistake

Case concerned a mistake relating to the ownership of a salmon fishery;
Individual agreed to lease a salmon fishery from the trustee of a settlement where it transpired that both parties were unaware that the fishery already belonged to the individual;
Agreement was set aside subject to a lien on the fishery for such monies as had been expended on improvements;Case concerned a mistake relating to the ownership of a salmon fishery;

“If parties contract under a mutual mistake and misapprehension as to their relative and respective rights, the result is, that that agreement is liable to be set aside as having proceeded upon a common mistake.”

Question 9

Bell v Lever brothers Ltd [1932] AC 161

Answer 9

common mistake - uk case adopted In Ireland

Plaintiff was a managing director who had been carrying out personal trades for profit contrary to his contract of employment, with the defendants, his employer, unaware of these activities;
Plaintiff was made redundant and offered a redundancy payment;
Defendant sought to have the redundancy contract rendered void for common mistake;
Contract was not voided, the mistake was not fundamental to the identity of the contract;

Question 10

Solle v Butcher [1950] 1 KB 671

Answer 10

common mistake - uk case adopted In Ireland

Lessee lease a flat for a period of years thinking that the Rent Acts did not apply to it on account of the fact that it had been refurbished;
Both parties were actually mistaken, the maximum rent applicable was much less than the lessee was paying;
Lessee sought to have the contract set aside for mistake, with this action ultimately succeeding

Question 11

Great Peace Shipping Ltd. v Tsavliris Salvage (International) Ltd. [2002] 3 WLR 1617:

Answer 11

tightening the application in common mistake

Case concerned a straded ship;
Defendants were professional marine salvors who had been informed whilst at sea that a vessell called the Cape Providene had become stranded;
Defendant entered into an agreement with the owners of the stranded ship, and hired the services of a boat called the Great Peace to rescue the ship on account of the fact that the defendant and the Great Peace believed the Great Peace was 35 miles away from the stranded ship;
Turned out the Great Peace was aroudn 410 miles away from the stranded ship;
The defendant found a closer both and terminated their contract with Great Peace, which resulted in Great Peace suing the defendant for breach of contract;
Defendant argued common mistake as to the location of the stranded vessel;
Rescission not granted for common mistake as the mistake in this case was not deemed to be sufficiently fundamental;
Defendant claimed the stranded ship was 35 miles away - it was actually 400 miles away and Plaintiff wanted to rescind the contract

Question 12

Intrum Justitia BV v Legal and Trade Financial Services Ltd [2005] IEHC 190;

Answer 12

Appears unlikely that Irish courts would follow the restricted views of Great Peace Shipping;
Seen in this case.

Despite the more strict approach adopted in Great Peace Shipping, it is likely to be the case in Ireland that the Courts are permitted to exercise a greater degree of discretion as set out by Lord Denning in Solle v Butcher;
Keane in Equity and the Law of Trusts in Ireland outlines the following scenarios that can give rise to rescission being granted for common mistake in equity:
the party seeking relief has not been at fault;
third parties have not acquired rights in reliance on the contract;
the party seeking relief is prepared to submit to such terms as the court considers equitable.

citing Solle and Butchers instead

Question 13

Monaghan County Council v Vaughan [1948] IR 306

Answer 13

unilateral mistake

Case of a tender for a demolition contract where the agreement provided for the plaintiff to be paid the sum of £1,200 in return for allowing the demolition to occur, which was mistakenly understood by the defendant that they were to be paid £1,200 for carrying out the work;
Rescission was not granted, although it was noted by the Court that it was possible to obtain rescission in cases of unilateral mistake.

Question 14

Riverlate Properties Ltd v Paul [1975] Ch 133:

Answer 14

unilateral mistake

Case concerned a lease prepared by the lessor’s solicitors that obliged the lessor to bear the costs of exterior and structural repairs;
Neither the lessee nor the lessee’s solicitor were aware of this provision;
Court deemed this to be an instance of unilateral mistake and held rescission could not be granted for such a mistake;

Question 15

Ogilvie v Littleboy adopted in the case of Gibbon v Mitchell [1990] 1 WLR 1304

Answer 15

VOLUNTARY DISPOSITION

“A donor can only obtain back property which he has given away by showing that he was under some mistake of so serious a character as to render it unjust on the part of the done to retain the property given to him.”

Question 16

Gibbon v Mitchell [1990] 1 WLR 1304

Answer 16

VOLUNTARY DISPOSITION
stricter view

Case concerned application by the plaintiff to have a deed set aside which was supposed to surrender his protected life interest in a trust fund in favor of his two adult children and to release a power of appointment in favor of his children;
Ultimately, the transfer was not carried out as intended;
Court ruled the voluntary transaction could be set aside;

Question 17

Allcard v Skinner [1887] 36 Ch D

Answer 17

undue influence (presumed)

Plaintiff joined a sisterhood and undertook a vow of poverty, transferring large amounts of money and stock to the sisterhood;
Upon leaving the order, plaintiff sought to have these transfers revoked on the basis of undue influence;
Held that the gifts were recoverable in principle as the plaintiff had been pressured and received no independent legal advice;
However, on account of laches/acquiescence (plaintiff did not initiate proceedings until around six years after she left the sisterhood) the plaintiff was not entitled to relief;

not granted due to delay

Question 18

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

Answer 18

undue influence

The presumption of undue influence was addressed
where the following insights were given into when this presumption arises and the class of relationships that can be caught by this presumption:
“The law has adopted a sternly protective attitude towards certain types of relationships in which one party acquires influence over another who is vulnerable and dependent and where, moreover, substantial gifts by the influence on vulnerable person are not normally to be expected… In these cases the law presumes, irrebuttably, that one party had influence over the other. The complainant need not prove he actually reposed trust and confidence in the other party. It is sufficient for him to prove the existence of the type of relationship…parent and child, guardian and ward, trustee and beneficiary, solicitor and client, and medical adviser and patient.”

Question 19

Actual undue influence/class one seen in the case of Carroll v Carroll [1998] 2 ILRM 218

Answer 19

actual undue influence

Case concerned a conveyance between a father and a son;
Plaintiff sought to have the conveyance set aside due to undue influence, both presumed and actual;
Supreme Court held there was a presumption of undue influence in this case;
Also clear evidence before the trial judge to set the transaction aside for improvidence;
Issue of acquiescence also arose, which was dismissed and the conveyance ultimately set aside.

Question 20

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

Answer 20

presumed undue influence

umerous joint appeals taken by wives against their husbands in circumstances where husbands had mortgaged their homes to secure loans for their respective businesses, with each of these scenarios concerning business that had failed and the bank subsequently sought to take possession of the home;
In each case the wives claimed to have been unduly influenced into signing the security agreement;
In ruling on this matter, Lord Bingham stated the following regarding presumed undue influence;

Question 21

McMackin v Hibernian Bank [1905] 1 IR 296

Answer 21

presumed undue influence

Husband died and left estate to widow and daughter;
Widow took out administration and deposited the lease with a bank as security for money advanced on bills;
Bank had knowledge of the insolvent state of the widow and the daughter’s young age;
A few days before the daughter came of age, the bank deemed this security insufficient, so mother and daughter attended the bank when daughter was of age and the mother offered to secure the overdraft by a joint promissory note in her name and her daughters;
Daughter blankly agreed to sign the note without any form of advice;
Numerous promissory notes signed by the mother and daughter, eventually the mother defaulted and the bank sought judgment against both the mother and daughter by securing a mortgage on the property;
Bank manager said he explained to the daughter that if the mother defaulted the bank would enforce the debt against her personally, to which she replied that she understood;
Ultimately held that the judgment against the daughter should be void;

Question 22

Carroll v Carroll [1998] 2 ILRM 218

Answer 22

presumed undue influence

As noted before, case concerned the transfer of a pub between a father and a son;
Key feature of the case was the role that legal advice played in the transaction;
Father, who was mentally alert but physically infirm, was visited by a solicitor twice;
Solicitor was contracted by the donor’s son, and the son was present at each meeting the solicitor had with the father;
Son was sent a copy of the deed by the solicitor that contained within it a right of re
Issue of the presumption was raised as follows, which highlights the significance of both the relationship and the nature of the transfer;
Role of independent legal advice was scrutinised in the following way;
Decision is a prime example of the establishment of a relationship that gives rise to a presumption of undue influence (familial relationship) and also circumstances where a substantial benefit was obtained by one party;
Also an example of where a defendant seeks to argue that a plaintiff exercised their own free will in carrying out a transaction by way of the use of independent legal advice (which was ultimately not upheld).

Question 23

Prendergast v Joyce [2009] 3 IR 519

Answer 23

Case concerned the transfer of monies by the plaintiff, an elderly woman in a confused and vulnerable state, to the joint name of the plaintiff and the defendant, her late husband’s nephew;
Found that a presumption of undue influence arose in this case and that the presumption had not been rebutted by the defendant;

Question 24

M.C. v F.C. [2014] 1 ILRM 1

Answer 24

Decision which addresses how to rebut a presumption of undue influence;
Case concerned the Supreme Court upholding a finding that a nephew of M.C., F.C., a ward of court, had exercised undue influence over his aunt and that the gift of €900,000 from her to him should be set aside;
Court held the following in finding that the presumption of undue influence had not been discharged;

Question 25

National Westminster Bank Plc v Morgan [1985] AC 686

Answer 25

A word of warning raised

Not all relationships that can be described as fiduciary give rise to a presumption of undue influence;
Here rescission for undue influence was not granted on account of the fact that the relationship between the defendant and the bank went no further than a normal business relationship;
Can be contrasted with the decision in Lloyd’s Bank Ltd v Bundy [1975] QB 326