undo, arrow, redo-97591.jpg

Contract Rescission

Shape

Table of Contents

Rescission

Introduction and Overview

Both the common law and equity recognise that, in certain circumstance, a party may have a right a right to rescind, avoid or “set aside” an overview effective transaction.

Prior to rescission, the transaction is voidable rather than void à valid and effective, albeit subject to avoidance at the election of the right holder.

A right to rescind arises at common law in cases where a transaction has been brought about through fraud: Load v Green

A right to rescind arises in equity in as far wider range  of circumstances such as:

  • misrepresentation: Alati v Kruger
  • unilateral mistake: Taylor v Johnson
  • duress: Barton v Armstrong
  • undue influence: Johnson v Buttress
  • unconscionable dealing: Louth v Diprose
  • breach of fiduciary duty: Maguire v Makaronis

Rescission is a self-help remedy both at common law and equity, exercised by the right-holder giving notice of her/his election to rescind the other party: Alati v Kruger

Rescission allows the reversal or unwinding of a transaction ab intio so as to restore the parties to their original positions.

Rescission enables or effects restitution benefits transferred pursuant to the impugned transaction

The practical effect of rescission is to undo, and in this sense reverse, the conferral of benefits (valuable contractual rights) on the other party.

Rescission often effects personal restitution – e.g money has been paid pursuant to a contract

Rescission can also have proprietary effect as where rescission is sought to obtain the return of title to an asset that has been transferred pursuant to a contract or gift.

 

 

The requirement of restitutio in integram

Both at common law and in equity, a party’s right to rescind a contract or other transaction is conditional on restitutio in integram – that is, the transaction must be capable of being unwound so that both parties are restored to their original position.

 

Difference:

  • Common law requires precise resitutio in integram – any change in the nature of received benefit, however minor, or use of benefit by the P, however brief, precludes rescission.

Hunt v Silk and Blackburn v Smith

  • Rescission was barred because the parties had briefly taken possession of land pursuant to the impugned transaction.
  • It was not possible for the P to return the use of the land and hence restitutio in integram was impossible.

 

  • Equity adopts a more flexible approach – The requirement of resitutio in integram is satisfied provided that the parties can, through the taking of accounts and making of the appropriate consequential orders, be returned “substantially” to their original positions.

 

  • Case: Clark v Dickson

Facts: The P sought to rescind a transaction at common law for the purchase of shares brought about as a result of the D vendor’s fraudulent misrepresentation.

Held [Erle J]:

  • The P cannot avoid the contract under which he took the shares, because he cannot restore them in the same state as when he took them.
  • After three years of working of the mine, and trying to make a profit, he cannot restore the shares as they were before this was done.
  • He also changed the nature of the article: the shares he received were shares in a company on the cost book principle; the P offers to restore them after he has converted them into shares in a joint stock corporation.
  • …The offer to restore these shares is not made till after the company is in the course of being wound up, when all chances of profit is over, and the shares can only be a source of loss.

 

 

Held [Crompton J]:

  • When once it is settled that a contract induced by fraud is not void, but voidable at the option of the party defrauded, it seems to me to follow that, when that party exercises his option to rescind the contract, he must be in a state to rescind; that is, he must be in such a situation as to be able to put the parties into their original state before the contract.
  • …He has changed their nature: what he now has and offers to restore are shares in a quasi corporation now in process of being wound up
  • Tha P must rescind in toto or not at all; he cannot both keep the shares and recover the whole price
  • If he cannot return the article he must keep it, and sue for his real damage in an action on the deceit
  • The true doctrine is, that a party can never repudiate a contract after, by his own act, it has become out of his power to restore the parties to their original condition

 

Held [Campbell CJ]:

  • The P, on his own shewing, cannot rescind the contract and sue for money had and received, but must seek his remedy by a special action for deceit. In that action, if he proves what he states, he will recover, not the original price, but whatever is the real damage sustained

 

  • Case: Alati v Kruger

Facts: The respondent sought to rescind a transaction for the purchaser of a fruit business brought about as a result of the appellant’s vendor’s fraudulent misrepresentation as to the takings of the business.

Held [Dixon Cj, Webb, Kitto and Taylor JJ]:

  • The contract had been induced by fraudulent misrepresentation….the respondent…might sue for damages for breach of the warranty contained in cl.21, for the statement in the clause clearly formed one of the terms of the contract and was not only a representation; but he could not do this and rescind the contract for misrepresentation….
  • …Provided that he was in a position to restore to the appellant substantially that which he had received under the contract he might avoid the purchase and sue to recover his purchase money back from the appellant, with interest and also with damages for any loss which he may have suffered through carrying on the business in the meantime.
  • If the case had to be decided according to the principles of the common law, it might have been argued that at the date when the respondent issue his writ he was not entitled to rescind the purchase, because he was not then in a position to return to the appellate in specie that which he had received under the contract, in the same plight as that in which he had received it: Clarke v Dickson
  • …But it is necessary here to apply the doctrines of equity, and equity has always regarded as valid the disaffirmance of a contract induced by fraud even though the precise retitutio in integram is not possible, if the situation is such that by exercise of its power, including the power to take account of profits and to direct inquires as to allowances proper to be made for deterioration, it can do what is practically just between parties and by so doing restore them substantially to the status quo: Erlanger v Sombrero Phosphate Co

 

Held [Fullagar J]:

  • …The rule that restitutio in integram is a condition of rescission. It seems to me necessarily to follow from this that a purchaser remaining in possession after giving notice of rescission is under a duty to take reasonable care to preserve the property, so that what he has received from the other party may, so far as reasonably practicable, be restored to that other party.

 

  • Case: Maguire v Makaronis

Facts: The appellant (solicitor) lent an amount to their client. The loan was secured over another property owned by the respondents. The loan was used to purchase a poultry farm.  The farm was not a success. The respondents managed one repayment before they fell in breach of the loan contract. The appellant then demanded repayment of full amount. The respondents counter-claimed, arguing that the mortgage should be set aside for breach of fiduciary duty. The Court found a breach of fiduciary duty had been committed by the appellant and the mortgage could be rescinded. The question then became the condition on which rescission must occur.

Held [Brennan CJ, Gaudron, McHugh and Gummow JJ]:

  • …Given the undisclosed role of the appellants as mortgagee, the breach of duty went to the identity of the parties having the benefit under the mortgage both of the security and of the covenants to pay money. To set aside the mortgage purely in its operation as a security, without conditioning that upon repayment, would be to reform the transaction in an impermissible fashion. It would be to strike down the security interest without ensuring repayment of hat which was paid in return for it. The respondents would be left with the fruits of the transaction which they complain, whereas their equity was to have the whole transaction rescinded and, so far as possible, the parties remitted to their original position.

 

 

Election

A transaction which is voidable at the instance of the P remains valid unless and until the P elects to rescind.

The conventional view is that at common law, recession by election effects an immediate re-vesting of rights transferred to the other party.

An executory contract immediately ceases on rescission to have legal effect.

In equity, an executory contract voidable for some purely equitable ground, is likewise rescinded by notice of election to the other party and thereby ceases to have any effect.

By contrast, where title to an asset has been transferred pursuant to a voidable transaction, rescission operates to vest an equitable interest in the asset in the P.  The D then holds the asset on trust for the P, who may call for the return of the specific asset pursuant to the rule in Saunders v Vautier  or seek a court order for its return.

Election is crucial in transforming what is an inchoate (or potential) proprietary right, a mere power to rescind, into a vested legal or equitable interest in the transferred asset.

Election therefore plays a very powerful role in rescission. Election must be made by a clear and unequivocal act, being a manifestation of the P’s choice between affirmation and rescission of the impugned transaction.

Election must normally be communicated to the other party

Common methods of election include giving verbal or written notice, or by serving notice on the other party of an action seeking relief consequent on rescission (as in Alati v Kruger) – see case of Car & Universal Finance Co Ltd v Caldwell (below) which considers situation where the other party cannot be found to be notified of the P’s election to rescind.

 

  • Case: Daly v Sydney Stock Exchange Ltd

Facts: In April 1975 the appellant’s husband wished to invest some money and sought advice from firm of stockbrokers, Patrick Partners. They advised him to invest in the firm even though firm was in a precarious financial situation. They breached fiduciary duty. In July 1975 the firm seized trading; it was insolvent and unable to repay the appellant the amount advanced in deposit. The A’s claim for compensation from the fidelity fund of the Sydney stock exchange was dependent on the investment being held by Patrick Partners on trust for Dr Daly prior to becoming insolvent.

Held [Brennan J]:

  • When a gift is made to a donee who has failed to discharge his fiduciary duty to the donor, the gift may be set aside so that the donee holds the gift on constructive trust for the donor
  • …Irrespective of the fairness of its terms, equity regards a contract made between a fiduciary and the person to whom he stands in a fiduciary relationship as voidable if the fiduciary has breached his fiduciary duty in respect of the contract.
  • If property is transferred to the fiduciary pursuant to the contract, the transfer may be set aside in consequence of the avoidance of the contract: Armstrong v Jackson
  • The contract and transfer are voidable but not void
  • If the transfer is set aside, the fiduciary transferee holds the property transferred on constructive trust for a transferor which a court of equity will enforce subject to any accounts or enquiries which may be necessary to do equity to the transferee.
  • The transferor may elect to avoid the contract and to assert his title to the land or other property transferred assuming it still exists in specie or, being money, can be traced. He may invoke the assistance of equity to recover the land or other property in specie or to trace the money.
  • Since equity intervenes to prevent a fiduciary from retaining property acquired under a contract entered into in breach of his fiduciary obligation, equity will intervene to prevent him from acquiring money in like circumstances
  • A person lending money to a fiduciary who obtains the loan without discharging his fiduciary duty is entitled in equity to avoid the contract of loan and to recover, by tracing if need be, the money lent
  • …A party who seeks to avoid a contract and set aside a transfer of property made pursuant to the contract had an equitable interest in the property from the beginning, that the equitable remedies available to him are incidental to that interest and that his equitable interest arose before, and does not depend upon the court’s decree.
  • A I construe the criterion (of a liability enforceable against the fidelity fund), it is incumbent on a claimant to show that, at the time when the stockbroker received the moneys in question, he received them in behalf of another or as a trustee. The criterion is not satisfied if he received the moneys under a contract which gave him a beneficial title recognised by equity, albeit a beneficial title that is imperfect and liable to be divested by relation back in the event of avoidance of the contract of loan.

Held [Gibbs CJ]:

  • …It is however not enough for the appellant to establish that the relationship between Dr Dally and the firm of stockbrokers to which the money was paid was a fiduciary one…It is necessary to show that the moneys were received by the firm for on behalf of Dr Daly as trustee.

 

 

  • Case: Car & Universal Finance Co Ltd v Caldwell

Facts: The D sold a car to fraudster (Norris). Norris on sold the car to a firm of motor-dealers who had notice of the fraud. The car was eventually sold to P, a bona fide purchase without notice of the fraud. On realising the fraud the D notified Police and automobile association. The fraudster had meanwhile escaped. When the car was eventually located the P and D both laid claim to it. In interpleader proceedings, a key question was whether the D’s actions had been effective to rescind the sale at common law prior to the sale to the D.

Held Sellers LJ:

  • The appeal raises a primary point in the law of contract. The question has arisen whether a contract which is voidable by one party can in any circumstances be terminated by that party without his rescission being communicated to the other party.
  • The general rule is that where a party is entitled to rescind a contract and wishes to do so the contract subsists until the opposing party is informed that the contract has been terminated.
  • An affirmation of a voidable contract may be established by any conduct which unequivocally manifests an intention to affirm it by the party who has the right to affirm or disaffirm.
  • Communication of an acceptance of a contract after knowledge of a fundamental breach of it by the other party or of fraud affecting it is…evidence establishing affirmation but it is not essential evidence…where a contracting party could be communicated with, and modern facilities make practically worldwide and almost immediate, it would be unlikely that a party could be held to have disaffirmed a contract unless he went so far as to communicate his decision to do so. It would be what the other contracting party would normally require and unless communication were made the party’s intention to rescind would not have been unequivocally or clearly demonstrated or made manifest.
  • …He has to establish clearly and unequivocally that he terminates the contract and is no longer to be bound by it. If he cannot communicate his decision he may still satisfy a judge that he had made a final and irrevocable decision and ended the contract… “How is a man in the position of Caldwell ever able to rescind the contract when a fraudulent person escapes as Norris did here?”…and answered that he can do so “..if he at once, on discovering the fraud, takes all possible steps to regain the goods even though he cannot find the rogue nor communicate with him.”

 

Held Upjohn LJ:

  • The D did everything he reasonably could to avoid the contract of sale, short of communicating his intention so to do to Norris, the whole question is whether such acts of avoidance were effective in law to avoid the contract on the day, or whether communication to Norris of intention to avoid the contract was necessary in law.
  • …If one party, by escaping, deliberately puts it out of the power of the other to communicate his intention to rescind which he knows the other will almost certainly want to do. I do not think he can any longer insist on his right to be made aware of the election to determine the contract.

 

 

Partial Rescission

The traditional position both at common law and in equity is that rescission must be total.

The P can elect to rescind, or can affirm, a transaction, but cannot do both. In particular, it is not open to a P to elect to rescind part only of a transaction and affirm another.

The reason for this is that the purpose of rescission is to restore parties to the status quo ante by reversing or unwinding.

However, IMPORTANT HIGH COURT CASE – Vadasz v Pioneer Concrete (SA) Pty Ltd endorsed partial rescission.

 

  • Case: Vadasz v Pioneer Concrete (SA) Pty Ltd

Facts: Vadasz was a director of Vadipile, a company in financial difficulty. Pioneer concrete was owed money by Vadipile for past concrete supplies and required a personal guarantee form Vadasz as a condition of making any further deliveries. Vadasz signed a guarantee of past and future indebtedness of Vadipile. At trial it was found that he had been induced to do so by a representation by Pioneer that the guarantee related only to future indebtedness.

Held [Deane, Dawson, Toohey, Gaudron and McHugh JJ]:

  • The only question on the appeal to this court is whether the trial judge was entitled to order rescission on a footing which left the appellant liable to the respondent for the debts incurred by Vadipile after the guarantee was signed.
  • …A contract may be set aside in equity so long as the “court will do what is practically just in the individual case” so long as “it is possible to achieve what is practically just by granting rescission and restitution together with order for accounts.”
  • In Erlanger v New Sombrero Phosphate Company, Lord Blackburn said: …And I think the practice has always been for a court of equity to give this relief whenever, by the exercise of its power, it can do what is practically just, though it cannot restore the parties precisely to the state they were in before the contract
  • The appellant suggested that to set aside the guarantee in the present case only to the extent of past indebtedness was an invitation to other to misrepresent the terms of a contract because the would be no worse off than if they had revealed the true position. But the suggestion misconceives the ordinary function of civil remedies, including equitable relief…
  • the concern of equity, in moulding relief between the parties to prevent , nullify, or provide compensation for, wrongful injury. It appears that the other party would not have entered into the contract at all if the true position were known, the contract may be set aside in its entirety…
  • The appellant is “seeking assistance of a court of equity and he who seeks equity must do equity”.
  • The Court must look at what is practically just for both parties, not only the appellant. To enforce the guarantee to the extent of future indebtedness is to do no more than hold the appellant to what he was prepared to undertake independently of any misrepresentation.

 

Bars to Rescission

A power to rescind is fragile in a number respects

Unexercised common law or equitable proprietary power to rescind may be defeated by the intervention of a bona fide purchaser of an interest in the asset the subject of the power.

However, the P’s right to obtain personal restitution of the value of the asset (sometimes called pecuniary rescission) may remain: McKenzie v McDonald

Rescission in equity is subject to the usual bars such as hardship and laches.

Delay, however lengthy, is rarely enough to bar rescission on the ground of laches. Somehting more is required

Latches has two limbs:

  • delay with acquiescence; and
  • delay with prejudice: Lindsay Petroleum Co v Hurd

 

Delay with acquiescence:

An umbrella label which is used in cases where the P has waived or abandoned the claim, or as a result of his conduct is estopped from bringing a claim.

In rescission, it is connected with bar of affirmation. The right to rescind is lost when the P unequivocally manifests an intention to affirm the transaction

Once a P becomes aware of the facts giving rise to her right to rescind, and is free of any vitiating factor (ie, undue influence, mistake or duress) so can bring an independent mind to her choice, a failure to rescind within a reasonable time may be taken as evidence of her decision to affirm the contract à right to rescind is lost

Affirmation can also be effected by positive acts consistent with affirmation, such as bringing a claim to specifically enforce, or obtain compensation for a breach of, a voidable contract. 

 

Delay with prejudice:

Concerned with the effects of delay, particularly the possible prejudice it may cause to the D’s right to a fair hearing and other consequences to the D that may flow from the lapse of time

Examples of prejudice:

D has reasonably acted to his her detriment in reliance on the P’s delay à change of position considerations: Archer v Archer

Witnesses have died or evidence which have cast a different complexion on the matter has been lost of destroyed.

In determining the weight to be given to delay, consideration is given to length of delay, nature of the claim and the P’s reason for delay. See case below.

 

  • Case: Hartigan v International Society for Krishna Consciousness Incorporated

Facts: P gave her family home to D company under the misguided belief that her religion required it. The D sold the property and used the proceeds, inter alia, to pay off a number of debts. After leaving the movement for Krishna Consciousness, the P sought restitution of the property on the grounds of presumed undue influence.

Bryson J found the presumption of undue influence was raised on the facts and not rebutted.  Accordingly he held that the transaction should be “set aside”. The D raised a number of bars to relief.

Held [Bryson J]:

  • I accept that some element of hardship may well flow to some persons, but I do not regard this as a sufficiently substantial hardship to countervail the claim of justice made by the P…in my view, the remedy should not be refused on the ground of hardship
  • It was also contended that proper purpose use has been made of proceeds of sale and that in Allcard v Skinner (1887) relief was withheld in respect of the assets which had been applied to proper purposes and were no longer available… In my view nothing has happened which makes it unjust that the D should be required to pay to the P the amount which it received on sale of the Rosebery Creek Farm. The amount received went immediately to reduce the D’s debt burden, creating an economic advantage in reducing debt which must be reflected in its overall position now. I see no injustice in restoring the D to the relative position of indebtedness which it would have been in if it had not received the proceeds of the sale…
  • There were remarkably long delays…D’s counsel contended that delay had led in various ways to prejudice to the D in the conduct of the proceedings. I do not think that any such prejudice has much weight in support of a decision to withhold equitable relief, because the principle persons involved…were available to give evidence and gave evidence, and their evidence demonstrated a clear appreciation of the difficulties of the gift, and no matter when the hearing took place there was no possible source of evidence of independent advice. The D was not prejudiced by lapse of time in dealing with the truly important issues in the litigation.
  • The delay does however have an impact on the remedy which in my view should be awarded to the P… There is no difficulty in perceiving that the appropriate remedy is to require the D to pat the P the amount required for the sale…however it does not appear to be just that she should recover interest in respect of the lengthy period before she brought the proceedings, or before she brought her claim on for hearing…in my view, the appropriate dealing with interest is that the P should recover interest from the commencement of the hearing on 20 Nov 2001.

 

Rescission and the Australian Consumer Law

As was noted by Mason P in Akron Securities Ltd v Iliffe (1997), s87 of the Trades Practices Act (now ss237, 238, 243 ACL) offers veritable ‘smorgasbord’ of remedies where a person ‘has suffered, or is likely to suffer, loss or damage by conduct of another person what was engaged in contravention” of provisions including the prohibition of  misleading and deceptive conduct (s18 ACL) and unconscionable conduct (ss21, 21 ACL)

Section 237(2) ACL provides that any order “must be an order that the court considers will:

  • compensate the injured person, or any such injured persons, in whole or in part for the loss or damage; or
  • prevent or reduce the loss or damage

Section 243 ACL provides a non-exhaustive list of the kinds of orders that may be made to achieve those ends.

 

243   Kinds of orders that may be made

Without limiting section 237(1), 238(1) or 239(1), the orders that a court may make under any of those sections against a person (the respondent ) include all or any of the following:

(a)  an order declaring the whole or any part of a contract made between the respondent and a person (the injured person ) who suffered, or is likely to suffer, the loss or damage referred to in that section, or of a collateral arrangement relating to such a contract:

(i)  to be void; and

(ii)  if the court thinks fit–to have been void ab initio or void at all times on and after such date as is specified in the order (which may be a date that is before the date on which the order is made);

(b)  an order:

(i)  varying such a contract or arrangement in such manner as is specified in the order; and

(ii)  if the court thinks fit–declaring the contract or arrangement to have had effect as so varied on and after such date as is specified in the order (which may be a date that is before the date on which the order is made);

 (c)  an order refusing to enforce any or all of the provisions of such a contract or arrangement;

(d)  an order directing the respondent to refund money or return property to the injured person;

(e)  except if the order is to be made under section 239(1)–an order directing the respondent to pay the injured person the amount of the loss or damage;

(f)  an order directing the respondent, at his or her own expense, to repair, or provide parts for, goods that had been supplied by the respondent to the injured person;

(g)  an order directing the respondent, at his or her own expense, to supply specified services to the injured person;

(h)  an order, in relation to an instrument creating or transferring an interest in land, directing the respondent to execute an instrument that:

(i)  varies, or has the effect of varying, the first mentioned instrument; or

(ii)  terminates or otherwise affects, or has the effect of terminating or otherwise affecting, the operation or effect of the first mentioned instrument.

 

None of the orders listed adopt the language of rescission. Nor do they refer to other related concepts such as counter-restitution, the requirement of retitutio in integram or the role of election.

Courts have repeatedly held that the statute empowers them to award rescission like remedies, in particular pursuant to a combination of s243(a),(c),(d).

The equitable remedy of rescission in that regard constitutes a powerful but not binding guide to the relevant considerations that should inform analogous orders made under the statute

 

  • Case: Munchies Management Pty Ltd v Belperio

Facts: The respondents purchased a business known as “Palm Terrace Restaurant” from Munchies Management Pty Ltd. Purchase price of $144000 under the contract covered plant, equipment, and goodwill, plus an additional amount for the value of stock as determined by an independent valuer. Respondents also agreed to pay out Munchies’ obligations owed to AGC Ltd under six leases held over certain plant and equipment.

Trial judge found that the respondents had entered into the purchase transaction in reliance on certain fraudulent representations as to the restaurant’s taking made by Mr Munro the agent of Munchies.

Under s75B of TPA , this made Mr Munro “a person involved” in the misleading and deceptive conduct of Munchies and made him liable to orders under s87(1A) TPA and s82 (s243, 236 ALC respectively).

Held [Fisher, Gummow, and Lee JJ]:

  • Where the purchaser of an asset, particularly a business, seeks damages in tort for deceit, he cannot recover the entire price he has paid unless what he acquired proved wholly worthless, and if it has any appreciable value, the damages must be reduced pro tanto; this is because deceit was an action on the case for special damage incurred in consequence of the D’s fraudulent inducement: Toteff v Antonas
  • In our view, in the circumstances of this case, the right to rescission was not lost after the re-entry of Elizabeth City Centre in March 1988. There had been a failure by the respondents to pay the rent and charges after commencement of the court proceedings, but it must be remembered that Munchies remained liable under the covenant in the lease so that Munchies bears some close responsibility for what happened seven months later, that this was not a case where the purchaser abandoned possession as in Alati v Kruger, and that Munchies had refused to accept the notice of recession…
  • …Rescission at common la did not lie for innocent misrepresentation, that is to say misrepresentations that are not fraudulent in the common law sense. There, recourse could be had only to equity. The present… is a case of fraud in the strong sense of the term, and thus one to which both systems would apply but with different consequences.
  • ..The indemnity thus was limited to the detriment suffered as a “direct consequence of the fraud”; accordingly, supervening causes such as an error of business judgement by the P in the arrangement of his affairs by, for example, borrowing from a third party greater sums than he could repay or service, may take the loss beyond the scope of indemnity: Gould v Vaggelas
  • The orders for accounting and payment of money made in those cases as part of the process of rescission ab initio may be seen as recovery literally of the amount of loss or damage within the meaning of s82, giving “recovery” the sense of regaining through restitution a position lost by the conduct of which complain is made…
  • In any event, orders such as those in Alati v Kriger …may properly be considered as reducing the loss or damage suffered within the sense of s87.

 

  • Case: Demagogue Pty Ltd v Ramensky

Facts: The Ramnskys purchased a unit “off the plan” from Demagogue in reliance on certain misleading conduct by its agent concerning driveway access to the unit. The trial judge declared the contract void under s87 TPA and ordered that Demagogue repay the deposit and consequential costs incurred by the purchasers. Demagogue appealed.

Held [Black CJ]:

  • This appeal should be dismissed with costs
  • No reason has been shown for departing from the findings of the primary judge that the appellant engaged in conduct that was misleading or deceptive, in contravention of s52 TPA.
  • …I add some observation of my own about the requirement of ss87(1) and 87(1A) to show the loss to show the loss or damage has been suffered or is likely to be suffered and the appellant’s contention that “loss or damage” is used in s87 in the same sense as in s82
  • …The general law does not impose, as a requirement for effective rescission, that a party who has been induced to enter into a contract by a misrepresentation must have suffered loss and damage in the sense of a loss for which a pecuniary award may be made. in the TPA, the right of rescission given to consumers by s75A where there has been a breach of a condition implied by a provision of Div 2 of pt V is not conditional upon the existence of loss or damage in that sense.
  • Despite the use of the same words “loss or damage” that appear in s82, it would be surprising if s87, in providing a range of discretionary remedies, contained a limitation that is not imposed by the general law in cases that would fall within the scope of Pt. V TPA and that would, in any event, seriously limit the usefulness of the section…I consider that s87(1), read in the context of the Act as a whole, contains clear indications that the suggested limitation was not intended.

 

Held [Gummow J]:

  • …Whilst contractual rights subsisted between the parties their relationship is not governed simply by the general law as to vendor and purchaser. The legislation regulates the existence and exercise of what would otherwise be the rights at general law and, in addition, itself creates new rights and remedies.
  • Unlike the position in general law with the administration of the equitable remedy of rescission of contracts, orders under s87 may be made not only against parties to the contract but also against third parties, being persons involved in the contravention as a result of which the P entered into the contract: Lezam Pty Ltd
  • …It may well be that the contract is not financially disadvantageous to the complainant. But if a contract is rescinded in equity for some vitiating factor in its formation, it is not sufficient for the D to show that the transaction to which the complainant was improperly induced to assent, after all, contained terms which, viewed objectively, were not manifestly disadvantageous so that, the complainant should freely have accepted them. The complaining is entitled to say that but for the unconscientious conduct of the D he or she would not have entered into any transaction with D.

 

Shape

02 8806 0866

Book Online

WE GET IT

Explore More Legal Resources and Articles

WE'RE IN IT TO WIN IT

Book your free consultation