If a party to a contract exploits the serious mistake of the other party, then the party who made the mistake has an equitable right to recission.
In December 2008, the Commonwealth Bank of Australia (CBA) loaned to Mr Owen Bruce Stephens $2,100,300 that was secured by a mortgage over Mr Stephens property at Wooralla Drive, Mount Eliza. Mr Stephens defaulted, and CBA sued for possession of the property to recover the amount owing.
Mr Stephens defended the claim by CBA on several grounds including that he executed the loan documents and the mortgage in the mistaken belief that the financial accommodation to be provided by CBA would be $2,550,000 and that the interest payable would be capitalised to allow him to subdivide the property and purchase a second property.
The court analysed the evidence carefully and found that CBA was not aware of a serious mistake that would support the claim by Mr Stephens for recession.
Mr Stephens attempted to succeed with his claim for recission on the further ground that CBA was aware that circumstances existed which indicated that he was entering into the contract under a serious mistake or misapprehension and deliberately set out to ensure that he did not become aware of his mistake or misapprehension.
Because of the extensive communication between the bank and the parties representing the interests of Mr Stephens as to the terms of the loan, this argument failed.
Mr Stephens failed in all his defences and an order of possession of the property was made in the bank’s favour.
Case: Commonwealth Bank of Australia v Stephens  VSC 385.