Fender (Administrator of FG Collier & Sons Ltd) v National Westminster Bank Plc

Equitable relief may be granted where a sufficiently serious mistake causally induced a transaction. The relevant question is whether the person affected by the mistake would have acted as they did had the true facts been known. The court need not treat the distinction between a transaction’s legal effect and its consequences as a rigid limit on the jurisdiction. This applies where a mistaken release unintentionally changes a creditor’s status from secured to unsecured. Relief is available where the transaction produced an unintended benefit, rather than merely an unwise commercial result or a change of mind.

The administrator of FG Collier & Sons Ltd sought directions concerning the status of National Westminster Bank as a creditor in the company’s administration. The company had granted the bank an all-monies mortgage over property and had also guaranteed the liabilities of a connected company. After those liabilities were discharged, the bank mistakenly executed a deed releasing the mortgage, unaware that the company remained indebted to it on its own account.

The bank sought to be treated as a secured creditor, contending that the deed was liable to be set aside for mistake. The central issue was whether the equitable jurisdiction to relieve against mistake applied and, if so, what test governed its exercise.

1. Relief for mistake. Equity has jurisdiction to set aside a transaction for mistake in appropriate circumstances. The mistake must be sufficiently serious and causative. The relevant inquiry is whether the person affected would have acted as they did if aware of the true facts.
2. The causative approach reflected the modern law on recovery of money paid under mistake, including the approach discussed in Kleinwort Benson Ltd v Lincoln City Council [1999] 2 AC 349, and was adopted for the equitable jurisdiction. It would be anomalous for equity to be more restricted than the common law.
3. The traditional distinction between mistake as to the effect of a transaction and mistake as to its consequences was not necessary to decide the case. In any event, the bank’s mistake could be characterised as one concerning the transaction’s unintended effect: it believed that it was releasing the mortgage because no indebtedness remained, but in fact released security for the company’s continuing debt.
4. The case was not one of commercial regret or second thoughts. The bank’s mistaken belief caused it to execute the deed, and it would not have done so had it known of the company’s outstanding liability.
5. The administrator was directed to recognise the bank as a secured creditor as if the deed of release had never been executed. The alternative argument based on Ex parte James (1874) 9 Ch App 609 was not determined.