Bhatt v Bhatt & Ors

Equity may set aside a voluntary transaction for mistake where the disponor did not intend it to have the effect it produced. The mistake may be one of law or fact, including a sufficiently serious mistake about an existing or pre-existing fact. The mistake must exist when the transaction is made; a later falsification of expectations is insufficient. The court must also be satisfied that, had the true facts been known, the disponor would not have entered into the transaction. A failure properly to explain documents, particularly where the transaction does not implement the disponor’s intentions, may justify rescission.

The claimant sought rescission of a trust deed, deed of variation, notice of severance and transfer concerning her home. She had entered into the documents after receiving tax-planning advice which led her to believe that immediate inheritance tax steps were required and that the arrangements would preserve her control and occupation of the property.

The claimant contended that she had misunderstood the need for the transaction, its tax effects and its impact on her rights. The central issue was whether those mistakes were operative mistakes sufficient to engage the equitable jurisdiction to set aside the transaction.

1. The court held that the equitable jurisdiction to set aside a voluntary transaction for mistake applies where the disponor did not intend the transaction to have the effect it produced. The mistake may concern law or fact, but must relate to the effect of the transaction itself rather than merely its consequences or advantages. The court relied on Gibbon v Mitchell [1990] 1 WLR 1304 and applied the reasoning in In re Griffiths [2009] 2 WLR 394.
2. An existing or pre-existing factual mistake may suffice if it is sufficiently serious. The operative mistake must exist when the transaction is entered into; a later falsification of expectations is not enough. The court adopted the reasoning in In re Griffiths [2009] 2 WLR 394, including its distinction between an operative mistake and an unexpected subsequent event.
3. For an individual disposing of her own property, the court must be satisfied that, if the true facts had been known, she would not have acted as she did. It is unnecessary to prove precisely what alternative course she would have taken.
4. The claimant’s solicitor had failed to give a sufficiently full explanation of the documents and their effects. The claimant had limited English, had probably not seen the tax advice, and had been led to enter into arrangements which provided no intended inheritance tax advantage, deprived her of control over the property and potentially created adverse tax consequences. Those matters demonstrated serious mistakes concerning the transaction itself and its implementation of her intentions.
5. The transaction as a whole was set aside and the registered title was to be rectified. The order was subject to the Revenue being given immediate notice and an opportunity, within 28 days, to contest it. The trial of the remaining issues was adjourned sine die, subject to costs.