(I) RESCISSION

(i) The Nature of Rescission

Where a transaction, usually a contract,^[1] is voidable for fraudulent misrepresentation,^[2] duress,^[3] or non-disclosure in respect of contracts of insurance or guarantee,^[4] the claimant can set it aside at Common Law. Where it is voidable for fraudulent^[5]

or non-fraudulent misrepresentation^[6] or undue influence,^[7] the transaction can be set aside in Equity.^[8] Both at Law and in Equity the mechanism for setting the transaction aside is rescission.^{[9] [10] [11]} Once a transaction is rescinded it is nullified and everything which has been done under it is liable to be undone,^{1 7} so that the parties are restored to their original position; there is a giving and a taking back on both sides.^{1 8} This is effected by reference to the law of restitution rather than the law of contract.^[10]

Rescission has been described as a remedy,^[13] and it can be considered to have restitutionary consequences since a function of rescission is that the claimant can recover ‘the property with which he has parted under the contract and [must return] the benefit which he received’ to the defendant.^[14] This restitutionary consequence is available once the claimant has satisfied the conditions for setting the transaction aside, as recognized by Millett LJ in Portman BS v Hamlyn Taylor and Neck:^[15]

The obligation to make restitution must flow from the ineffectiveness of the transaction under which the money was paid and not from a mistake or misrepresentation which induced it... If the payer exercises his right of rescission in time and before the recipient deals with the money in accordance with his instructions, the obligation to make restitution may follow.

Rescission does not necessarily have restitutionary consequences. For example, sometimes the court may order rescission on terms, such as requiring the parties to enter into a new, more appropriate contract.^[16] Usually, however, rescission will have restitutionary consequences. For example, money paid by a claimant pursuant to a voidable transaction can be recovered as a consequence of rescission. This restitutionary consequence follows automatically from the rescission of the transaction, but it is also a condition of rescission, since the transaction cannot be set aside if the parties cannot be restored to their original position. Even where an executory contract is rescinded it can be considered to have restitutionary consequences, since the defendant is required to give up those rights against the claimant which derived from the contract, with a corresponding benefit

to the claimant.^[17]

• [1] But the transaction may also be a deed or a voluntary disposition to a trust.
• [2] Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1997] AC 254.
• [3] Whelpdale’s case (1605) 5 Co Rep 119a. 121 Ionides v Pender (1874) LR 9 QB 531.
• [4] 122 The National Crime Agency v Robb [2014] EWHC 4384 (Ch), which also held that a transaction is
• [5] voidable for fraud even though the transaction was initially legitimate and the fraud arose subsequently.
• [6] Lamare v Dixon (1873) LR 6 HL 414.
• [7] Dunbar Bank plc v Nadeem [1998] 3 All ER 876. See Chapterll.
• [8] Following Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2002] EWCA Civ 1407,[2003] AC 679 the equitable jurisdiction to grant rescission for common mistake has been rejected.
• [9] See generally D O’Sullivan, S Elliott, and R Zakrzewski, The Law of Rescission (Oxford: OxfordUniversity Press, 2007); N Andrews, M Clarke, A Tettenborn, and G Virgo, Contractual Duties: Performance,Breach, Termination and Remedies (London: Sweet and Maxwell, 2012), chs 1-4.
• [10] Manifest Shipping Co Ltd v Uni-Polaris Insurance Co Ltd (The Star Sea) [2001] UKHL 1, [2003] 1 AC469, [51] (Lord Hobhouse).
• [11] Shalson v Russo [2003] EWHC 1637 (Ch), [2005] Ch 281, [122] (Rimer J).
• [12] Manifest Shipping Co Ltd v Uni-Polaris Insurance Co Ltd (The Star Sea) [2001] UKHL 1, [2003] 1 AC469, [51] (Lord Hobhouse).
• [13] Dunbar Bank plc v Nadeem [1998] 3 All ER 876, 884 (Millett LJ).
• [14] Smith New CourtSecuritiesLtd v Scrimgeour Vickers (Asset Management) Ltd [1994] 1 WLR 1271,1280(Nourse LJ).
• [15] [1998] 4 All ER 202, 208. 133 See p 28, below.
• [16] 134 NY Nahan, ‘Rescission: A Case For Rejecting the Classical Model?’ (1997) 27 Univ WALR 66, 72; AVMLodder, Enrichment in the Law of Restitution and Unjust Enrichment (Oxford: Hart Publishing, 2012), 117.Cf
• [17] Criterion Properties plc v Stratford UK Properties LLC [2004] 1 WLR 1846, 1855 where Lord Scott recognizedthat the creation of contractual rights through an executory contract does not constitute the receipt of an assetand therefore cannot constitute an enrichment.