1 Burrows, A., The Law of Restitution (Butterworths, London, 1993) (“Burrows”), p 32Google Scholar.

2 This article will not deal with those “fundamental” common mistakes often said to render a contract void at common law (see Bell v. Lever Bros Ltd [1932] AC 161), which it is suggested are better explained as instances of failure of an implied condition precedent (see Solle v. Butcher [1950] 1 K.B. 671 at 691 and J. C. Smith, “Contracts—Mistake, Frustration and Implied Terms” (1994) 110 L.Q.R. 400).

3 Birks, P.B.H., Introduction to the Law of Restitution (Clarendon Press, Oxford, 1989) p. 163Google Scholar argues that rescission of a purely executory contract is itself a restitutionary process, and this view is shared by N.Y. Nahan (née Chin), “Rescission: A Case for Rejecting the Classical Model?” (1997) 27 U.W.A.L.R. 66 at pp. 72-73. This writer prefers the view of Burrows (n. 1 above) that rescission of a purely executory contract involves no element of restitution. The argument that rescission involves restitution, namely the revesting of the benefit of contractual rights (albeit that those rights have instantaneously ceased to have any meaningful value or existence upon the moment of rescission), seems unnecessarily complex and unreal.

4 See for example Chitty, A Practical Treatise on the Law of Contracts not under Seal (2nd ed, 1834) p. 573. More recently, Morison, , Rescission of Contracts: A Treatise on the Principles Governing the Rescission, Discharge, Avoidance and Dissolution of Contracts (Steven & Haynes, London, 1916)Google Scholar, regarded the term “rescission” as “peculiarly applicable to … cases of determination by act (consent) of [both] parties” and preferred the term “avoidance” for the process known today as rescission.

5 Johnson v. Agnew [1980] A.C. 367.

6 [1996] 3 All E.R. 61. An elderly man sold his shares in the family hotel business to his son-inlaw, who later sold the business at considerable profit. In subsequent proceedings, the son-inlaw failed to rebut the presumption of undue influence, but it was impossible for the parties to be restored to their former positions (the hotel business had been sold and the company wound up). Rescission was therefore barred, but instead the court awarded the plaintiff “equitable compensation” assessed by reference to the gains made by the defendant on the transaction, putting the plaintiff into the monetary equivalent of the pre-contract position.

7 [1991] A.C. 254.

8 Ibid. at p. 262: “[T]he reasons why Smith abandoned their claim to rescind were not explored before your Lordships. I will therefore say nothing about the point save that if the current law in fact provides (as the Court of Appeal thought) that there is no right to rescind the contract for the sale of quoted shares once the specified shares purchased have been sold, the law will need to be closely looked at hereafter. Since in such a case other, identical shares can be purchased on the market, the defrauded purchaser can offer substantial restitutio in integrum which is normally sufficient.”

9 The latter thesis is propounded by Chambers, , Resulting Trusts (Clarendon Press, Oxford, 1991)Google Scholar, whilst the “mere equity” analysis is supported by SirMillett, Peter in Cornish, Nolan, O’Sulllivan, & Virgo, (eds.), Restitution Past, Present and Future (Hart Publishing, Oxford, 1991) p. 216Google Scholar and by A. J Oakley ibid. pp. 229-230. See also Twinsectra Ltd. v. Yardley [1999] Lloyds L.R. 438, 461-462, in which Potter L.J. supports the “mere equity” analysis.

10 An issue settled by Millett L.J. in Bristol and West Building Society v. Mothew [1998] Ch. 1, 22-23: “The right to rescind for misrepresentation is an equity. Until it is exercised the beneficial interest in any property transferred in reliance on the representation remains vested in the transferee. In El Ajou v. Dollar Land Holdings Plc [1993] 3 All E.R. 111, 134 I suggested that on rescission the equitable title might revest in the representee retrospectively at least to the extent necessary to support an equitable tracing claim. I was concerned to circumvent the supposed rule that there must be a fiduciary relationship or retained beneficial interest before resort may be had to the equitable tracing rules …. But all that is by the way. Whether or not there is a retrospective vesting for tracing purposes it is clear that on rescission the equitable title does not revest retrospectively so as to cause an application of trust money which was properly authorised when made to be afterwards treated as a breach of trust.”

11 For simplicity, this article will use the term “plaintiff” throughout for the party rescinding or seeking rescission, though rescission is also commonly raised by way of a defence.

12 Though in exceptional circumstances the plaintiff may be able to rescind without communicating notice thereof to the other party: Car and Universal Finance Co Ltd v. Caldwell [1965] 1 Q.B. 525 and see later.

13 The authority usually cited for this proposition is Reese River Silver Mining Co v. Smith (1869) L.R. 4 H.L. 64 (“Reese”).

14 See for example Millett L.J. in Bristol and West Building Society v. Mothew [1998] Ch. 1, 22: “Misrepresentation makes a transaction voidable not void. It gives the representee the right to elect whether to rescind or affirm the transaction. The representor cannot anticipate his decision. Unless and until the representee elects to rescind the representor remains fully bound.”

15 Note 1 above, p. 32.

16 Treitel, G.H., The Law of Contract (Sweet & Maxwell, London, 10th ed., 1999), p. 344Google Scholar.

17 Furmston, M., Cheshire, Fifoot & Furmston's Law of Contract (Butterworths, London, 13th ed., 1996), p. 292Google Scholar.

18 Beatson, , Anson's Law of Contract (Oxford University Press, Oxford, 27th ed., 1998) p. 248Google Scholar.

19 [1950] 1 K.B. 671.

20 Smith, “Contracts—Mistake, Frustration and Implied Terms” (1994) 110 L.Q.R. 400, 419.

21 Chambers, Resulting Trusts n. 9 above, chapter 7.

22 Birks, , Introduction to the Law of Restitution, (Clarendon Press, Oxford, 1989) p. 66Google Scholar.

23 Typical is the following passage from Cheshire, Fifoot & Furmston's Law of Contract, n. 17 above, p. 294: “Rescission, even though enforced by the court, is always the act of the defrauded party, in the sense that it is his election which effectively destroys the contractual nexus between him and the other party. It follows that rescission is effective from the date it is communicated to the representor and not from the date of any judgment in subsequent litigation.”

24 Burrows p. 32, footnote 2.

25 Goode, , Commercial Law (Penguin, London, 2nd ed., 1995) p. 113Google Scholar.

26 Bower, Spencer and Turner, , Actionable Misrepresentation (Butterworths, London, 3rd ed., 1974)Google Scholar.

27 Ibid. p. 272.

28 [1965] 1 Q.B. 525.

29 (195 5) 94 C.L.R. 216.

30 Ibid. p. 224.

31 For example, Atlantic Lines & Navigation Co Inc v. Hallam Ltd. (The “Lucy”) [1983] 1 Lloyds L.R. 188.

32 For example, Leaf v. International Galleries [1950] 1 All E.R. 693; Witter (Thomas) Ltd v. TBP Industries Ltd [1996] 2 All E.R. 573.

33 [1985] 1 Q.B. 428, 457 per Dunn L.J.

34 [1995] 1 F.C.R. 430.

35 Ibid. p. 461.

36 See for example William Sindall plc v. Cambridgeshire County Council [1994] 1 W.L.R. 1016.

37 [1994] A.C. 180.

38 [1995] 1 W.L.R. 430.

39 See chapter 24 of Meagher, , Gummow, & Lehane, , Equity: Doctrines & Remedies (Butterworths, Sydney, 3rd ed., 1992)Google Scholar.

40 Chitty, A Practical Treatise on the Law of Contracts not under Seal (2nd ed, 1834) p. 527, 573 etcGoogle Scholar.

41 Anson Principles of the English Law of Contract (1st ed. 1879).

42 Contracts could also be avoided at common law for duress (Whelpdale's case (1605) 5 Co. Rep. 119a), certain instances of non-disclosure (see for example Jonides v. Pender (1874) L.R. 9 Q.B. 531) and for fundamental mistake of fact leading to a total failure of consideration (Gompertz v. Bartlett (1853) 2 El. & Bl. 849).

43 See for example Clarke v. Dickson (1858) El. Bl. & El. 148, an action for money had and received for the price of certain shares following a purported rescission of the sale contract for fraud. The action failed because the purchaser was unable to return the shares in the same form as before the contract (the company having been converted to limited liability in the meantime).

44 Erlanger v. New Sombrero Phosphate Co (1878) 3 App. Cas. 1218, 1278-9 per Lord Blackburn.

45 So in Edwards v M’Leay (1818) 2 Swan. 287, Eldon L.C. ordered that a conveyance of land “be set aside” on the basis of the vendor's fraud, with consequential orders for the cancellation of the conveyance and the taking of accounts.

46 See Meagher, Gummow & Lehane, n. 39 above, para. 2414: “the position is quite different [i.e. from the situation under equity's concurrent jurisdiction] when equity deals with a contract or disposition which is not voidable at law… Then clearly the decision of the court of equity cannot be expressed as merely confirming a rescission already made at law by election of the party concerned no longer to be bound.”.

47 (1878) 3 App. Cas. 1218.

48 (1871) LR 7 Ex. 26, 35.

49 (1878) 3 App. Cas. 1218, 1278 (emphasis added).

50 Ibid. p. 1277.

51 (1867) L.R. 2 H.L. 149. For a detailed examination of what the case did, and did not, decide, see P. Matthews (1989) 105 L.Q.R. 599.

52 See Matthews n. 51 above, p. 605.

53 Ibid. p. 167.

54 (1866) L.R. 1 H.L. 200.

55 Ibid. p. 216.

56 (1865) 34 Beav. 382.

57 (1881) 20 Ch. D. 1.

58 Ibid. p. 12.

59 Meagher Gummow & Lehane (n. 39 above) describe this blurring process in para. 2414, as follows:“Many of the cases which purport to lay down the principles here involved fraudulent misrepresentations … Others involved innocent misrepresentations and thus the auxiliary jurisdiction, but the distinction was not noted and authorities were cited from the concurrent jurisdiction”.

60 [1923] A.C. 773 (“Abram”).

61 This conceals a significant issue. It is clear from previous judgments in the case (interlocutors of the Lord Ordinary and the First Division of the Court of Session in Scotland, reported at 1922 S.C. 571) that “essential error” was being used as the “materiality” test for non fraudulent misrepresentations. So Lord President Clyde said, “the quality of essential error (for the purposes of a plea of essential error induced by innocent misrepresentation) covers any error material to entering into the contract, and the consequent acceptance of its rights and obligations.”.

62 Ibid. p. 781.

63 Ibid. p. 785.

64 Oakes v. Turquand (1867) L.R. 2 H.L. 325, itself a fraud case.

65 (1869) L.R. 4 H.L. 64, 73 (and see p. 534 below at n. 99).

66 [1894] A.C. 96 (another Scottish appeal to the House of Lords).

67 Ibid. p. 108.

68 See for a recent example Re Brown and Root McDermott's Fabricators Ltd's and another's application [1996] S.T.C. 483, 493, citing Abram with approval.

69 [1939] 3 Ch. D. 271.

70 Ibid. p. 288.

71 (1955) 94 C.L.R. 216.

72 Ibid. pp. 223-224 (emphasis added).

73 [1985] Q.B. 428, 457 per Dunn L.J.

74 See Lord Diplock in United Scientific Holdings v. Burnley Borough Council [1977] 2 W.L.R. 806, 811, though cf. P.V. Baker, “The Future of Equity” (1977) 93 LQR 529.

75 For example, Treitel (n. 16 above) uses “rescission” for both processes, but defends this terminology on the basis that the alternative language is “clumsy” (pp. 702-704).

76 (1804) 5 East 449.

77 This reason is given by all four judges and appears to form the ratio decidendi of the case. An alternative explanation, mentioned in the reasoning of three members of the court, is that, by continuing in occupation, the tenant elected to affirm the agreement: see Goff, & Jones, , The Law of Restitution, 5th ed., (Sweet & Maxwell, London, 1998) p. 527Google Scholar (“Goff & Jones”).

78 Indeed, even at the time of Hunt v. Silk, an action on the contract for damages would have been open to the plaintiff. Hunt's action for money had and received was non-suited, which specifically left him entitled to bring an action for damages instead. I am grateful to Mr Michael Prichard for this point.

79 [1980] A.C. 367.

80 Ibid. pp. 392-393.

81 Henty v. Schroder (1879) 12 Ch. D. 666; Barber v. Wolfe [1945] Ch. 187; Horsier v Zorro [1975] Ch. 302; and Capital and Suburban Properties Ltd v. Swycher [1976] Ch. 319.

82 See also Photo Production Ltd v. Securicor Transport Ltd [1980] A.C. 827, in particular Lord Wilberforce's criticism of the terminological confusion generated by the inappropriate use of the term “rescission”.

83 In the sense of restoration of benefits conferred under an executed contract, although is not clear whether this view would be shared by commentators who regard rescission of a purely executory contract as restitutionary (n. 3 above). This is not to deny the possibility that the innocent party may have a quantum meruit or quantum valebat claim for the reasonable value of services or goods provided under the contract where the contract price had not accrued by the date of discharge: see Goff & Jones pp. 531-534.

84 Cf. Car and Universal Finance Co Ltd. v. Caldwell [1965] 1 Q.B. 525 ('Caldwell”’).

85 Lord Upjohn did not express a conclusion on whether recaption is an exception to the requirement of communication or itself a mode of communication, saying ‘Counsel for the plaintiff concedes that there is one [exception to the requirement of communication]: where the subject matter of the contract is a transfer of property, then the party entitled to do so may disaffirm the contract by retaking possession of the property; but counsel submits that this is really a method of communication, though for my part I do not see how this can be true of every case that could be suggested.”.

86 Although it may not be entirely consistent with the rule that it is only where the defendant's possession of goods was wrongful from its inception that those goods can be recaptured using force. For example, an owner must resort to law and cannot use force or trespass on land to retake goods after a bailment has come to an end: “I can not enter his house and take the goods for they did not come there by a wrong but by the act of us both.” Webb v. Bevan (1844) 6 M &G 1055, approved in Devoe v. Long [1951] 1 D.L.R. 203.

87 The cases generally cited are Re Eastgate ex parte Ward [1905] 1 K.B. 465 and Tilley v. Bowman Ltd [1910] 1 K.B. 745.

88 See Clough v. London and North Western Rail Co (1871) L.R. 7 Exch. 26, “No man can at once treat the contract as avoided by him, so as to resume the property he parted with under it, and at the same time keep the money or other advantages that he obtained under it …”.

89 Atlantic Lines & Navigation Co Inc v. Hallam Ltd. (The “Lucy”) [1983] 1 Lloyds L.R. 188.

90 [1993] 1 W.L.R. 1077.

91 [1905] 1 K.B. 465.

92 Ibid. p. 467.

93 [1965] 1 Q.B. 525, 528-529.

94 Sometimes this result is avoided on the facts. In Newtons of Wembley Ltd v. Williams [1965] 1 Q.B. 560, the third party was protected, on the basis that the sale to him had the same effect as if the seller was a “mercantile agent” (pursuant to section 9 of the Factors Act 1889). Therefore, as the third party bought the car in a well-established street market, without notice of the plaintiff's purported rescission, he acquired good title.

95 The real reason for the decision in Caldwell may well have been the fact that the court was less than impressed with the conduct of the third party: see Sellers L.J. ibid. p. 529: “I can see nothing unjust in the loss falling on the G & C Finance Corporation Ltd … who made the minimum enquiries, who bought a car which apparently they never saw and hired it out to a man of whose existence and identity they did not know and who may well have been fictitious …”

96 Law Reform Committee's 12th Report, Transfer of Title to Chattels, para. 16 “We think that unless and until notice of the rescission of the contract is communicated to the other contracting party an innocent purchaser from the latter should be able to acquire good title.”.

97 Sale of Goods Act 1979, section 23. See Whitehorn Bros v. Davison [1911] 1 K.B. 463.

98 (1869) L.R. 4 H.L. 64.

99 See p. 523 below at text to n. 65.

100 Oakes v. Turquand (1867) L.R. 2 H.L. 325, itself a fraud case.

101 Reese p. 73.

102 Companies Act 1862 sections 35 and 98.

103 Reese p. 81.

104 Ibid. p. 76.

105 Derived from Oakes v. Turquand (1867) L.R. 2 H.L. 325.

106 According to Fry L.J., the shareholder must have “done something more than” merely elect to rescind his contract to take shares: Re Scottish Petroleum Co. (Wallace's case) (1883) 23 Ch. D. 413, 439.

107 [1965] 1 Q.B. 525, 532.

108 (19 55) 94 C.L.R. 216, 222-224.

109 [1994] 1 A.C. 180 (“O’Brien”).

110 [1995] 1 W.L.R. 430.

111 (1995) 130 A.L.R. 570.

112 Ibid. p. 579.

113 The decision has been distinguished by the Court of Appeal in Dunbar Bank plc v. Nadeem [1998] 3 All E.R. 876, with Millett L.J.'s cautious words at p. 884, “Whether that case was rightly decided or not, it was a very different case.”.

114 O’Sullivan, J., ‘Undue Influence and Misrepresentation after O’Brien: Making Security Secure’, ch. 3, in Rose, F. (ed.) Restitution and Banking Law (Mansfield Press, Oxford, 1998)Google Scholar.

115 With respect, it is also difficult to agree with Roch L.J.'s assumption that the jurisdiction to award damages in lieu of rescission under section 2 (2) of the Misrepresentation Act 1967 potentially extends to misrepresentations made by a stranger to the disputed contract.

116 That is not to say that the conclusion reached in Vadasz was necessarily appropriate, given that fraud was assumed.

117 Burrows, p. 32.

118 [1899] 2 Ch. 392.

119 For example Rigby L.J.'s dissent, ibid. pp 458-459, and Collins L.J., ibid. pp . 463-464.

120 See for example Witter (Thomas) Ltd v. TBP Industries Ltd [1996] 2 All E.R. 573, 588.

121 Generally, the transferor's equity to rescind a voidable transaction survives the transferee's insolvency. See Load v. Green (1846) 15 M. & W. 216.

122 In Twinsectra Ltd. v. Yardley [1999] Lloyds L.R. 438, 462, Potter L.J. refers loosely to the backdating analysis in passing, (though it makes no substantive difference to the result). He states: “where a transferor's legal and equitable title to his property has passed to the transferee according to basic principles of property law but in circumstances (e.g. involving fraud or misrepresentation) where the transferor has an equitable right (i.e. mere equity) to recover the property by having the transfer set aside, and the court declares that from the outset the transferee has held the property to transferor's order…” (emphasis added).

123 (1955) 94 C.L.R. 216.

124 Ibid. p. 223.

125 Ibid. pp. 225-227.

126 Feret v. Hill (1854) 15 C.B. 207.

127 [1936] 1 All E.R. 667.

128 [1993] Ch. 116.

129 (19 84) 49 P. & C.R. 148.