© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
Effect and consequences of rescission
EFFECT
Transaction set aside
- Voidable not void
"[41] The first head of relief claimed in the amended Particulars of Claim is a declaration that the relevant shares "were not appointed upon the trusts of the October [2008] Appointment". Insofar as the wording of this head of relief assumes that the mistakes made by the trustees had the consequence that the transfer of the relevant shares to Mr Kennedy was void, it is plainly misconceived. A Pitt v Holt mistake makes the voluntary disposition voidable in equity not void at law." (Pitt v. Holt [2013] UKSC 26)
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- Voided transaction treated as having not occurred
"[130] In my opinion that submission begs the question, since if a transaction is set aside the Court is in effect deciding that a transaction of the specified description is not to be treated as having occurred. In the case of inheritance tax, this is expressly provided by section 150 of the Inheritance Tax Act 1984. That section is expressed in general terms as applying where a transfer "has by virtue of any enactment or rule of law been set aside as voidable or otherwise defeasible", and the effect is that tax which would not have been paid or payable "if the relevant transfer had been void ab initio" is to be repaid, or cease to be payable. There is no exception in section 150 for avoidance on the ground of a mistake about tax..." (Pitt v. Holt [2013] UKSC 26)
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"[95] Nevertheless, it seems to me that the analogy with a contract or other consensual disposition, set aside as being voidable for misrepresentation or on some other ground, is of some value in determining the effect of the setting aside of the consent order.
[96] In principle it seems to me that there is much to be said for the proposition that, where a defendant relies on the defence of having been a bona fide purchaser for value without notice at the time of receipt, and for that purpose has to show that value was given under a transaction, but by the time that the point is raised the relevant transaction has been set aside, then it is no longer open to the defendant to deploy that defence successfully or, at any rate, that the fact that the transaction has been set aside, and the circumstances in which it was, are relevant to the enquiry as to whether value was given for the transfer of the legal title. Otherwise, the question whether the defence can be made good would have to be determined on a false basis, ignoring not only the factor vitiating the original transaction but also the fact that the transaction has been set aside on the ground of that factor, and the parties to that transaction restored, so far as they can be, to their original positions, as if the transaction had never taken place." (Independent Trustee Services Limited v. GP Noble Trustees Limited [2012] EWCA Civ 195, Lloyd LJ)
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- Possible for tax legislation to apply to purported transactions, even if set aside, but needs to be clear
"[37] The second point to consider is the effect of the rescission. As I have already said, the effect of an equitable rescission for mistake is to undo the transaction from the beginning. It is thereafter treated for the purposes of the general law as if it never took place: see AC v DC [2012] EWHC 2032, [30]. Whether it has the same effect for the purposes of tax law must however depend on the true construction of the tax law in question.
This is because it is competent for Parliament to legislate so as to impose a tax burden not only if a certain act is done or an event takes place, but also if such an act is purportedly done or an act appears to take place, but thereafter the Court says that it did not because of a vitiating factor. This latter approach would obviously be rare, and would no doubt have to be the subject of express wording or at least necessary implication in the relevant legislation. The ordinary or default position would be that the tax (whatever it was) should be exigible only where the act or event is ultimately held to be valid and effective under the general law. So under the default position, if the act or event is ultimately held not to be valid and effective under the general law, it is also not treated as a taxable event either: AC v DC [2012] EWHC 2032, [31]-[41].
Here I am not aware of any special legislation. I must therefore assume that the default position applies. If that is so, then, for example, income received between the date of the transfer and the date of a revesting by virtue of rescission in the original owner should belong to the original owner and not to the purported (but now divested) owner. This is what was held to have occurred in Wright v National Westminster Bank [2014] EWHC 3158 (Ch), [25]." (Bainbridge v. Bainbridge [2016] EWHC 898 (Ch), Master Matthews)
Property transferred pursuant to set-aside transaction
- Rescission of transaction under which property was transferred re-vests title retrospectively
"[53] Rescission avoids the contract ab initio. In relation to assets transferred to the representor, the better view (encapsulated in the authorities reviewed by Rimer J in Shalson v Russo) is that title re-vests in the representee retrospectively once the election to rescind the contract is made..." (Independent Trustee Services Limited v. GP Noble Trustees Limited [2012] EWCA Civ 195, Patten LJ)
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“[30] Of course, it is true that the line of authorities discussed by Rimer J [in Shalson] is concerned with rescission for (often fraudulent), whereas the present case is concerned instead with a sufficient to justify rescission. But I do not think that this difference matters. The consequence of the rescission is the same whether it takes place because of fraudulent (or negligent) misrepresentation, or because of causative and basic unilateral mistake. The property transferred under such a mistake revests beneficially in the transferor, subject to third party rights. In a case where third party rights cannot be disturbed, there is no reason not to apply the tracing process to exchange products of the transferred property in order to find other assets to which to make a claim instead.” (Bainbridge v. Bainbridge [2016] EWHC 898 (Ch))
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- Appointments made from sub-trust that was set aside did not need to be reversed because they were made under the terms of head-trust
"[78] HMRC suggest that relief might be refused because the claimant does not intend to call in the loans which have been made, or to seek repayment of sums which have been distributed. Mr Wilson submitted that it is not necessary for such steps to be taken. The appointments, both from the HFBT and the EFRBS, did not create new settlements and the powers exercised by the trustee were those contained in the head trust, which remained fully applicable after each relevant appointment had been made. Indeed, the decision to proceed with the appointments would not have been taken had such new settlements resulted, because there would have been adverse capital gains tax consequences as the appointment would then be a chargeable disposal for the purposes of Taxation of Chargeable Gains Act 1992, s.71(1).
[79] HMRC do not suggest in their letter that the appointments by the trustee to beneficiaries from the sub-trusts, or the loans made by the trustee to beneficiaries in respect of any individual sub-trust, will be directly affected by the rescission of the appointments onto sub-trusts. The power of the trustee to make the subsequent appointments and loans will not be rescinded and there is thus no necessity for those transactions to be unwound.
[80] The question is whether the granting of the equitable remedy should be made contingent on their being unwound. HMRC ask the court to consider carefully whether it is appropriate to grant a remedy without all the subsequent transactions being unwound. They do not explain why rescission ought to be refused. The fourth requirement for rescission, as summarised in Kennedy v Kennedy, is that the order should not be granted in such a way or on such terms that would operate unjustly, unfairly or unconscionably. In Pitt v Holt, the claimant indicated in correspondence that she would not seek to make any claims against the recipients or distributions or other payments from the trustees (see at [138]). Lord Walker indicated at [141] that, in the absence of that letter, an undertaking to similar effect might have been required.
[81] This point is also made in Rogge v Rogge [2019] EWHC 1949 (Ch) at [164.3], explaining at [165] that rescission may be ordered even where complete restitution is impossible. The court then went on to discuss whether the order would operate unfairly on third parties, and indicated that an order for rescission would be made only if the claimants provided suitable counter restitution. I do not consider that third parties are so affected in the present case so as to require the consideration of such conditions." (JTC Employer Solutions Trustee Limited v. Garnett [2024] EWHC 3128 (Ch), Master Brightwell)
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- Trace property interests into replacement assets
"[32] It is clear from the evidence that the claimant has transferred a mixture of cash and assets into the two settlements. Where cash has been provided by the claimant, it has been used to purchase assets and to incur expenditure on them. I accept that that is no bar to rescission because the traceable proceeds can still be recovered. The parties anticipate that the issue can be resolved by agreement between the parties if the court grants rescission; but, if necessary, there can be appropriate accounts and inquiries." (Hartogs v. Sequent (Schweiz) AG [2019] EWHC 1915 (Ch), HHJ Hodge QC)
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"[30] Of course, it is true that the line of authorities discussed by Rimer J is concerned with rescission for misrepresentation (often fraudulent), whereas the present case is concerned instead with a mistake sufficient to justify rescission. But I do not think that this difference matters. The consequence of the rescission is the same whether it takes place because of fraudulent (or negligent) misrepresentation, or because of causative and basic unilateral mistake. The property transferred under such a mistake revests beneficially in the transferor, subject to third party rights. In a case where third party rights cannot be disturbed, there is no reason not to apply the tracing process to exchange products of the transferred property in order to find other assets to which to make a claim instead.
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[32] In my judgment this shows that it is not only in cases of fraudulent misrepresentation that the idea of 'proprietary base by avoidance' and the tracing process can be prayed in aid. The principle is wide enough to cover other vitiating factors too. In my judgment it extends to cases of mistake, and it is therefore open to the Claimants in the present case to make a claim to the new land.
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[34] ... In principle the original owners of Harker Hill and Fox Covert, neither being at fault, are entitled to share the beneficial ownership of the new land in proportion to the value that each of Harker Hill and Fox Covert bore to the total value of both parcels of land at the date when they were sold out of the trust and turned into proceeds of sale. As I have already said, there can be no tracing into the payment of stamp duty, legal costs and partnership liabilities." (Bainbridge v. Bainbridge [2016] EWHC 898 (Ch), Master Matthews)
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- Follow asset/traceable proceeds into acquisition by innocent volunteer, but no liability for innocent volunteer if they transfer on
"[77] So, in the case of an innocent volunteer recipient of money which is the product of a breach of trust, the legal title is in the recipient but the equitable title remains in the beneficiaries of the relevant trust throughout. Conventionally, in a situation where the legal title to an asset is held by A but the beneficial ownership is in B, A is regarded as holding the asset on trust for B. To say that, however, is only the beginning of the analysis because it does not tell you what duties A owes to B in respect of the asset. The fact that A is not liable to account to B for the asset if A has parted with it (without receiving traceable proceeds) at a time when he had no knowledge of B's interest shows that this is not a case of a trustee who is subject to strict liability." (Independent Trustee Services Limited v. GP Noble Trustees Limited [2012] EWCA Civ 195, Lloyd LJ)
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- Impute steps taken later that cannot be reversed to original owners
"[42] It seems to me, therefore, that the right way to analyse what must be considered in the present case as having occurred, once the transfers into trust are treated as never having happened, is that the original owners have retained Harker Hill and Fox Covert, but that the sales (actually by the trustees) are to be imputed to those original owners, as also is the use of the proceeds (in part) to invest in the new land, and (in part) to pay stamp duty, costs and other liabilities of the business." (Bainbridge v. Bainbridge [2016] EWHC 898 (Ch), Master Matthews)
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Transaction set aside but not possible to revest property​​
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- Bona fide purchaser for value without notice acquires good title to the property
"[47] ... The premises for this conclusion can be broken down into a number of statements of principle.
(1) the question of notice is to be determined at the time when the legal estate passes (i.e. the date of purchase): see e.g. Macmillan Inc v Bishopsgate Investment Trust plc (No. 3) [1995] 1 WLR 978 at p. 1000;
(2) as between vendor and purchaser, title passes even if there is a subsequent total failure of consideration and is not re-vested in the vendor: see Westdeutsche Landesbank Girozentrale v Islington BC [1996] AC 669 which confirmed that a claimant under such a contract did not have a proprietary remedy based on a resulting trust because the relevant time for testing the conscience of the transferee was that of his receipt of the property which pre-dated the failure of consideration;
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[49] I have no difficulty in accepting the first three of these propositions..." (Independent Trustee Services Limited v. GP Noble Trustees Limited [2012] EWCA Civ 195, Patten LJ)
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- Must be raised as a defence
"[86] That depends on whether the respondent can successfully deploy the defence that she is a bona fide purchaser for value without notice. It is clear that this is a defence for her, the onus being on her to raise it and to establish it; it is not up to the claimant to prove that she does not have that status. This is not a case in which anything is likely to turn on evidential points, but it seems to me that it is important to keep it in mind that this is how the point works." (Independent Trustee Services Limited v. GP Noble Trustees Limited [2012] EWCA Civ 195, Lloyd LJ)
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- Existence of notice/awareness determined at the time of the acquisition of title
"[86] The question whether the recipient of the legal title had notice is to be determined at the time of acquisition of that title, at the latest. The cases in which an earlier date may be relevant do not matter for present purposes and I will ignore that possibility. I am not aware of any circumstances in which the question whether the recipient had notice could be affected by anything that happened later. That is because it is a question of fact." (Independent Trustee Services Limited v. GP Noble Trustees Limited [2012] EWCA Civ 195, Lloyd LJ)
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- Bona fide purchaser for value without notice can give good title to a purchaser from him/her who does have notice
"[47] ... The premises for this conclusion can be broken down into a number of statements of principle.
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(3) where a bona fide purchaser subsequently transfers the property to a volunteer or even to persons with notice of a prior equitable interest, those transferees nevertheless take free of such interests: see Wilkes v Spooner [1911] 2 KB 473 where (at p. 483) Vaughan-Williams LJ said that:
"It cannot seriously be disputed that the proposition which I quoted from Ashburner's Principles of Equity, p. 75, is good law. It is as follows: 'A purchaser for valuable consideration without notice can give a good title to a purchaser from him with notice. The only exception is that a trustee who has sold property in breach of trust, or a person who has acquired property by fraud, cannot protect himself by purchasing it from a bona fide purchaser for value without notice.'"
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[49] I have no difficulty in accepting the first three of these propositions..." (Independent Trustee Services Limited v. GP Noble Trustees Limited [2012] EWCA Civ 195, Patten LJ)
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- Rescission of the transaction by which the bona fide purchaser without notice acquired title removes their defence
"[52] Mr Twigger likens the position to one involving a subsequent failure of consideration but that is not, in my view, the right analogy. So far as any contractual analogy is appropriate, the most relevant one is the rescission of a contract of sale for fraud. If Mrs Morris had acquired the property of ITS under a contract of sale with her husband which was later rescinded for fraudulent misrepresentation, I do not see how she could thereafter rely upon that contract as giving her a clear title to the assets she acquired. Her election to rescind the contract would have reversed the process by which such a title was acquired and thereby exposed the property remaining in her hands to the prior equities which affected it.
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[57] In relation to assets which the representee has obtained from the representor under the rescinded contract, the same consequence ought in principle to apply. The representee could, as a result of electing to rescind, be required to return any assets transferred to him under the contract and in the representor's hands they would be subject to any prior equities." (Independent Trustee Services Limited v. GP Noble Trustees Limited [2012] EWCA Civ 195, Patten LJ)
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- Unjust enrichment as alternative remedy where deed set aside but rescission of transfer barred
"[53] Jones JA directed herself by reference to Ogilvie v Littleboy (1897) 13 TLR 399, CA, and Pitt v Holt [2013] UKSC 26, [2013] 2 AC 108 and concluded that the mistake by Jude in making the 1984 deed was so grave that it would be unconscionable and unjust to leave it uncorrected and refuse relief: paras 39-42. She observed (para 45) that under normal circumstances an order that the 1984 deed be set aside and the Land returned to Jude would suffice, but rescission of this kind was not possible because of the intervention of the rights of third parties not joined in the action who, moreover, were bona fide purchasers for value without notice. Instead, relief should be given on the basis of Selwyn’s unjust enrichment, in that he had been enriched by the receipt of a benefit, at Jude’s expense and it would be unjust to allow him to retain that benefit: paras 47-48...
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[66] The Court of Appeal was also plainly entitled to hold that the mistake involved was so serious as to warrant the setting aside of the 1984 deed in equity under normal circumstances, under the doctrine explained in Ogilvie v Littleboy and Pitt v Holt, and to seek to grant appropriate relief to take account of the particular circumstances of the case. The Board has heard no argument to question the conclusion of the Court of Appeal that rescission in this case was barred. The court confined its analysis to a claim by Jude in unjust enrichment at common law and it is unnecessary to consider other possibilities (cf Dominic O’Sullivan, Steven Elliott and Rafal Zakrzewski, The Law of Rescission (2nd edn, 2014), para 20.23)." ​(Moses v. Moses [2022] UKPC 42, Lord Sales)
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Partial rescission of a voluntary transaction
"[21] A further point is that rescission has usually been seen as an all or nothing remedy: see eg TSB v Camfield [1995] 1 WLR 430, CA. But the remedy awarded is fact sensitive, and permits what is practically just, as for example the cases of O'Sullivan v Management Agency and Music Ltd [1985] QB 428, 466-467, CA, and Cheese v Thomas [1994] 1 WLR 129, 137, CA, show. And, as stated earlier in this judgment, I held at the hearing last September that there was no reason why, in a non-contractual case at least, relief could not be sought in relation only to part of the property transferred subject to a vitiating factor and not all of it.
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[23] In the present case the transfers to the trustees of the registered estates in Seamer Grange Farm, Harker Hill and Fox Covert were all contained in separate forms TR1. Each transfer had a different transferor or transferors, because the legal ownership of each parcel was different. Each was therefore self-contained and entirely severable from the others. Each transferor could make an independent decision about whether to apply for relief from the effect of the mistake, or not." (Bainbridge v. Bainbridge [2016] EWHC 898 (Ch), Master Matthews)
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"[46] Returning to rescission, I consider that the claimants are entitled to the last alternative head of relief claimed in the amended Particulars of Claim, namely an order setting aside clause 2.1(c) of the October 2008 Appointment. Mr and Mrs Kennedy and Mr Sturrock have all given evidence that, if they had been aware of their mistake, they would have omitted clause 2.1(c) from the October 2008 Appointment. That is a self-contained and severable provision in the deed. There is authority that there cannot be partial rescission of a contract; it must be set aside as a whole and not only as to part: see De Molestina v Ponton [2002] 1 LL Rep 70, 286-289 and the cases cited there. That limitation makes sense in a contractual context and as preventing the court in effect imposing a different contract to the one the parties actually made. I see no reason, however, why that limitation should apply to a self-contained and severable part of a non-contractual voluntary transaction." (Kennedy v. Kennedy [2014] EWHC 4129 (Ch), Etherton J)​
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- Query whether subsequent transfer to third party of property prevents rescission operating at all in relation to the transfer (as opposed to the transaction)
"[90]...We would accept that, in that scenario, the mistake would have prima facie entitled Jude Moses to rescind (or, as synonymously expressed, to set aside) the 1984 deed following the leading case on rescission of a deed for a mistake which is Pitt v Holt [2013] UKSC 26, [2013] 2 AC 108. But there are well-established bars to rescission and, at least normally, one such bar is concerned to protect the rights of third parties (see, for example, in the context of misrepresentation inducing a contract, Edwin Peel, Treitel on The Law of Contract (15th edn, 2020) paras 9-113 -9-131; cf Dominic O’Sullivan, Steven Elliott and Rafal Zakrzewski, The Law of Rescission (2nd edn, 2014) para 20.23). Here it is not in dispute that the Land had been sold by Selwyn Moses to a bona fide purchaser for value without notice. Jude Moses could not therefore “pull back” legal title to the Land by rescission because good title had subsequently been obtained by the bona fide purchaser for value without notice. But that bar to rescission would not prevent the award of a personal restitutionary remedy for a causative mistake of fact falling within the common law part of the law of unjust enrichment. This would be analogous to a standard claim for restitution for a mistaken payment. The principal difference would be that in this situation one would be dealing with the value of a non-monetary benefit - the Land - mistakenly transferred rather than the value of money mistakenly paid. Using the traditional language, the claim would be one for a quantum valebat." ​(Moses v. Moses [2022] UKPC 42, Lord Burrows and Lady Rose - dissented on the question of whether there was a mistake. See majority view, above)
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"[20.23] Although text writers usually express the proposition that the intervention of third party proprietary rights will bar rescission in general terms, in fact it has never applied in equity. Equity is as assiduous as the common law in protecting the property rights of innocent third party purchasers, but it has always managed to achieve this without taking the extreme step of barring rescission." (The Law of Rescission, 3rd edition, O'Sullivan KC, Dominic; Elliott KC, Steven; Zakrzewski, Rafal)
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- Part to be rescinded must be severable
"[43] If the Appellant were no longer to be a trustee of the Settlement, nothing else in the DORA needs adjustment, or does not work, or ceases to make sense. So there is both verbal and substantive severability.
[44] I therefore conclude that the Appellant's appointment (or strictly, given my analysis above, her acceptance of it as signified by her signature) was a self-contained and severable part of the DORA and liable to be rescinded for undue influence if the other requirements of that are satisfied, as they are in this case."(Mackay v. Wesley [2020] EWHC 3400 (Ch), Meade J)
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COUNTER-RESTITUTION
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- Not absolute in relation to non-contractual voluntary transaction
"[62] The fact that the Trust has now distributed most of the assets is not necessarily a bar to the availability of recission. Indeed, that was the position in Pitt v Holt itself, where almost all of the trust assets were distributed before it came before the court and rescission of the transfers into the trust was still ordered." (Abadir v. Credit Suisse Trust Ltd [2021] EWHC 2573 (Ch), Chief Master Shuman)
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"[162] I consider that some of what might be termed the ancillary rules as to rescission in the context of the rescission of contracts only carry across in a more or less modified form to rescission of voluntary transactions for mistake under the principle in Pitt v Holt. Specifically I consider that in the case of a voluntary disposition the rules as to affirmation, change of position, and the possibility of complete or near complete or equivalent restitution and counter-restitution are not absolute. They are all matters which can be taken into account in an overall assessment of whether it would be unjust, unfair or unconscionable to leave the mistaken disposition in place.
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[165] As a matter of authority, the decision in Pitt v Holt itself is authority for the proposition that rescission of a voluntary transaction may be ordered, notwithstanding that complete restitution is impossible. Very briefly, for present purposes the relevant facts of Pitt v Holt were that by mistake some £800,000 worth of assets had been put into a "Special Needs Trust", referred to as a "SNT". By the time the mistake was realised and an application was made to set aside the SNT and the transfers into it, there were only a few thousand ponds left in the SNT. The bulk of the fund had been spent by the trustees in accordance with the terms of the SNT. In particular in paying for care for the principal beneficiary." (Rogge v. Rogge [2019] EWHC 1949 (Ch), Deputy Master Henderson)
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"[46]...There is authority that there cannot be partial rescission of a contract; it must be set aside as a whole and not only as to part: see De Molestina v Ponton [2002] 1 LL Rep 70, 286-289 and the cases cited there. That limitation makes sense in a contractual context and as preventing the court in effect imposing a different contract to the one the parties actually made. I see no reason, however, why that limitation should apply to a self-contained and severable part of a non-contractual voluntary transaction. In such a situation the allied principle that rescission can only be granted if both sides can substantially be restored to their pre-contractual positions is irrelevant. Again, no authority was cited to me on this point one way or the other. In the absence of authority to the contrary, I can see no reason in principle why, on the facts of the present case, clause 2.1(c) should not be set aside for mistake pursuant to the principles in Pitt v Holt." (Kennedy v. Kennedy [2014] EWHC 4129 (Ch), Etherton J)
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- Condition for obtaining assistance of equity in rescission is making counter-restitution
"[54] The necessary condition for obtaining the assistance of equity in the rescission process is that the representee should make counter-restitution. In a contractual case this will ordinarily involve him restoring to the representor any benefits which he has himself received under the contract or their equivalent value." (Independent Trustee Services Limited v. GP Noble Trustees Limited [2012] EWCA Civ 195, Patten LJ)
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- Consider effect on recipient as a factor in deciding whether unconscionable not to set aside and what order to make
"[163] I consider that the fourth requirement for the principle of Pitt v Holt to apply, that is that it must be unjust, unfair or unconscionable to leave the mistaken disposition in place includes within it a requirement to assess the impact of setting aside the transaction on the terms and conditions on which it might be set aside. Thus if a particular order would operate unfairly on a voluntary recipient, that would be an important and frequently a conclusive factor in deciding that it would not be unjust, unfair or unconscionable to leave the mistaken disposition in place. However, I consider that the impact of any relief and of the terms of any condition or counter-restitution which might be required also needs to be considered as a separate matter with a view to ensuring that in all the circumstances the order would operate justly and fairly. This follows as a matter of principle and authority.
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[164.3] Rescission of voluntary transactions for mistake under the principle of Pitt v Holt is an equitable remedy and it should not be granted in such a way or on such terms that would operate unjustly, unfairly or unconscionably." (Rogge v. Rogge [2019] EWHC 1949 (Ch), Deputy Master Henderson)
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- Counter-restitution payments where other funds were spent on property and that property is to leave the trust
"[182] I have held that the Non-Voidable Payments to the trustees should not be set aside for mistake. It follows that they and funds from any other sources of the Trust Fund which are not susceptible or potentially susceptible to tracing claims by the Claimants were intended to be held on the terms of the Trust. They were also intended to be spent, at least in part, on improvements to the property for the benefit of the Trust and its beneficiaries. I consider it just fair and conscionable that in setting aside the original £4.1 million payment and the Additional Mistaken Payments, counter-restitution should be made in respect of those intended benefits to the Trust. The more difficult question is whether that counter-restitution should be in respect of (i) the amounts of the Non-Voidable Payments and funds from any other sources of the Trust Fund which are not susceptible or potentially susceptible to tracing claims by the Claimants, possibly plus interest, or (ii) the amount by which their expenditure increased or has increased the value of the property. I consider that it should be the former.
[183] If the property had always been owned beneficially by the Claimants it is almost certain that the Non-Voidable Payments and funds from any other sources of the Trust Fund which are not susceptible or potentially susceptible to tracing claims by the Claimants would never have become assets of the Trust at all because on the hypothesis under consideration the Trust would not have come into existence or at least money would not have been out into it for the purpose of expenditure on the property. However, the payments were made and were intended to be held on the terms of the Trust. Hypothetical trustees having those funds in their hands and knowing that the property was or would become vested beneficially in the Claimants would not have spent the funds on the property and would have retained or used them for Trust or other Trust purposes. In my judgment that means that in unravelling what has occurred the full amounts of the expenditure of those funds should be provided to the trustees by way of counter-restitution, not the increase in the value of the property attributable to their expenditure." (Rogge v. Rogge [2019] EWHC 1949 (Ch), Deputy Master Henderson)
CONDITIONAL RESCISSION​​
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- Court may require undertakings as a condition of relief
"[66] I accept that the court has power to impose terms on granting rescission. The question is whether I should exercise my discretion to do so. The Appointments were made over 8 and 9 years ago respectively, after the trustees had taken into account the relevant considerations at that time. Those considerations may well be different 8 or 9 years later. Neither the court nor the trustees are fully appraised of the considerations that apply now. In those circumstances, the court has no proper evidential basis on which to decide whether it would right to impose the terms Lewis' counsel contends for." (Hopes v. Burton [2022] EWHC 2770 (Ch), Master Clark)
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"[172] The important point for present purposes is that made by Lord Walker at paragraph 141 where he said that but for Mrs Pitt's solicitors' letter, the court might, if minded to grant relief, have required an undertaking to the same effect as the one that Mrs Pitt and Mr Shores volunteered by that letter. Similarly in the present case, if I set aside the transfers to the trustees, I might, as a condition of making such an order, require an undertaking that no personal claims are made against them or that no other personal or proprietary claims arising out of the transactions are made by the Claimants.
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[175] In something of a reprise of what I have said above about the terms proposed in the draft consent order, I note that, at least in a contractual context, the conditions imposed by a court in relation to a proposed rescission and the terms as to counter-restitution must be such conditions and terms as are necessary to ensure restitutio in integrum (TSB Bank Plc v Camfield [1995] 1 WLR 430 (CA)). I have already indicated that restitutio in integrum is not an absolute requirement in relation to rescission for mistake under the principle in Pitt v Holt. However, any terms and conditions imposed on an order for rescission should at least so far as possible be aimed at putting the parties against whom rescission is ordered substantially into the positions they would have been in if the mistaken transaction had not taken place. In my judgment this follows from (i) the very meaning of the word "rescission" as a setting aside; (ii) analogy with the contractual rescission cases; (iii) the impermissibility of allowing rectification in disguise; (iv) the need for there to be some practical control on the scope of the terms and conditions imposed and (v) the need to do that which is just and equitable." (Rogge v. Rogge [2019] EWHC 1949 (Ch), Deputy Master Henderson)
- Conditional order of rescission
"[190] Where an order for rescission imposes conditions and requirements as to counter-restitution on the applicant, the order usually takes the form of a conditional order for rescission, the condition being as to the satisfaction of the specified conditions and requirements as to counter restitution." (Rogge v. Rogge [2019] EWHC 1949 (Ch), Deputy Master Henderson)
- Rescission conditional on corrective tax returns being submitted to HMRC to declare income from subject-matter
"[25] There is one other loose end. If the settlement is set aside the property is to be treated as having at all times belonged to Mr Wright and to Mrs Wright respectively. If that is so they must submit the appropriate revised tax returns reflecting the income received from the assets purportedly gifted into the discretionary trust fund and the bank will have to recover any tax which it paid on the income under the putative discretionary trust. As a condition of granting rescission I shall require each of Mr and Mrs Wright to give an undertaking forthwith to submit corrective returns to HMRC." (Wright v. National Westminister Bank [2014] EWHC 3158 (Ch), Norris J)
- No rectification by the back door (rescinding one transaction on condition another is entered into)
"[41] I reject the concept that the existence of the particular undertakings proposed in the present case should have a more general impact on whether or not I should order rescission. If such an impact was made by the undertakings, I consider that I would in substance be allowing rectification or something approaching it in circumstances where a case for rectification did not exist. That is something which in a case such as the present the law does not allow. The point was decided by Sir Andrew Park in Smithson v Hamilton [2007] EWHC 2900 (Ch) at paragraphs 61 – 80. This decision was not affected by the subsequent compromise of that case effected with the assistance of the Court of Appeal ([2008] EWCA Civ 996). At paragraph 61 Sir Andrew Park summarised his view as follows:
"The key points which I make in this part of my judgment are the following. The nature of the mistake in rule 3.5.2.1 was such that it could only be corrected by changing the rule, as opposed to nullifying it. The only way to change the rule retrospectively was by an order of rectification. That could only be achieved if the circumstances of the case qualified for rectification, but they did not. Where the rule in Hastings-Bass applies the effect is not to change something that trustees have done, but rather to set it aside altogether. But in this case rule 3.5.2.1 needed to be changed, not set aside. The claimants seek to navigate round this obstacle by their undertaking that, if the court sets the rule aside, they will make an amendment which introduces a new rule 3.5.2.1 that does not suffer from the mistake contained in the present one. This is rectification by the back door, and in my judgment it is not an acceptable way for the court to proceed."" (Rogge v. Rogge [2019] EWHC 1949 (Ch), Deputy Master Henderson)
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