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Rescission of Guarantees for Misrepresentation and Actionable Non-Disclosure

Published online by Cambridge University Press:  15 August 2002

Peter Watts
Peter Watts*
Affiliation:
University of Auckland
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Abstract

It has been a traditional requirement of rescission (ab initio), even as a response to fraudulent misrepresentation, that it must be possible to restore both parties to the relevant contract to some equivalence of their pre-contract positions. A line of cases involving rescission of guarantees has, however, permitted a surety to be entirely released from the guarantee even though the creditor has relied on it by supplying credit to the principal debtor. The suggested rationalisation is that the traditional requirement is confined to cases where rescission in specie is being sought and the innocent party can be adequately protected by a claim for damages. The article also addresses the relevance to rescission of the restitutionary concepts of change or position and counter-restitution.

Type
Shorter Articles
Information
The Cambridge Law Journal , Volume 61 , Issue 2 , 24 June 2002 , pp. 301 - 311
Copyright
Copyright © Cambridge Law Journal and Contributors 2002

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References

1 [2001] 1 All E.R. (Comm.) 319; [2001] 1 N.Z.L.R. 513; [2001] Lloyd's Rep. (Bank) 29.

2 (1845) 12 Cl. & F. 109; 8 E.R. 1339.

3 [1999] 3 N.Z.L.R. 26.

4 [1939] 3 All E.R. 271, 288 (H.L.); and (1955) 94 C.L.R. 216 , 223-224 (H.C.A.) respectively.

5 Clarke v. Dickson (1858) El. Bl. & El. 148, 154; 120 E.R. 463, 466; and Urquhart v. Macpherson (1878) 3 App. Cas. 831, 838 (P.C.).

6 Cf. Burrows, A., The Law of Restitution (London 1993), pp. 134136Google Scholar.

7 [1934] A.C. 468.

8 [1934] A.C. 468, 476.

9 [2001] UKHL 44; [2001] 3 W.L.R. 1021.

10 [1995] 1 W.L.R. 430 (C.A.).

11 For more recent examples, see Meng Leong Development Pte. Ltd. v. Jip Hong Trading Co. Pte. Ltd. [1985] A.C. 511, 524 (P.C.) and Thomas Witter Ltd. v. TBP Industries Ltd. [1996] 2 All E.R. 573, 588.

12 See Clarke v. Dickson (1858) El. Bl. & El. 148, 155; 120 E.R. 463, 466.

13 Cf. the analysis of Mahoney v. Purnell [1996] 3 All E.R. 61 in P. Birks, “Unjust Factors and Wrongs: Pecuniary Rescission for Undue Influence” [1997] R.L.R. 72, 78.

14 [1994] 1 W.L.R. 129.

15 See M. Chen-Wishart, “Loss Sharing, Undue Influence and Manifest Disadvantage” (1994) 110 L.Q.R. 173; Birks, P., “Change of Position and Surviving Enrichment” in Swadling, W. (ed.), The Limits of Restitutionary Claims: A Comparative Analysis (London 1997) p. 36Google Scholar, at pp. 47-48; and N. Nahan, “Rescission: A Case for Rejecting the Classical Model” (1997) 27 U.W.A.L.R. 66, 82-85.

16 [1994] 1 A.C. 180, and [2001] UKHL 44, [2001] 3 W.L.R. 1021, respectively.

17 (1887) 36 Ch.D. 145, 164. See too M. Chen-Wishart, “In defence of Unjust Factors: A Study of Rescission for Duress, Fraud and Exploitation” (2000) Oxford University Comparative Law Forum, http://ouclf.iuscomp.org, text to note 46.

18 [2002] 1 All E.R. (Comm.) 193.

19 At para. [45].

20 (1841) 9 M. & W. 54; 152 E.R. 24.

21 See P. Watts, [1999] N.Z. Law Review 373, 379-380.

22 [2002] 1 All E.R. (Comm.) 193, para. [45].

23 Ibid.

24 See P. Watts, “Restitution and Change of Position” (1999) 115 L.Q.R. 198, 200.

25 [1969] N.Z.L.R. 151 (C.A.).

26 [1999] 2 N.Z.L.R. 21 (C.A.).

27 See P. Watts, “A Property Principle and a Services Principle” [1995] R.L.R. 49, 52-54. Cf. the position of persons who buy misapplied trust funds: see Westpac Banking Corp. v. Savin [1985] 2 N.Z.L.R. 41 (C.A.), and Bank of Credit and Commerce (Overseas) Ltd. v. Akindele [2001] Ch. 437.

28 [2001] 1 N.Z.L.R. 513, para. [39]

29 [1900] A.C. 6.

30 (199 5) 184 C.L.R. 102.

31 [1995] 1 W.L.R. 430; see too De Molestina v. Ponton [2002] 1 Lloyd's Rep. 271.

32 [1999] 3 N.Z.L.R. 26, 40-41.

33 See D. O’Sullivan, “Partial Rescission for Misrepresentation in Australia” (1997) 113 L.Q.R. 16, 16; N. Nahan, (1997) 27 U.W.A.L.R. 66, 81; and A. Robertson, “Partial Rescission, Causation and Benefit” (2001) 17 J.C.L. 163.

34 See D. O’Sullivan, (1997) 113 L.Q.R. 16; N. Nahan, (1997) 27 U.W.A.L.R. 66; and L. Proksch, “Rescission on Terms” [1996] R.L.R. 71, 75.

35 See too M. Chen-Wishart, (2000) Oxford University Comparative Law Forum, http://ouclf.iuscomp.org, text to note 112.

36 Though for a case where part only of a transaction was set aside, see Bridgewater v. Leahy (1999) 194 C.L.R. 457; cf. De Molestina v. Ponton [2002] 1 Lloyd's Rep. 271.

37 Cf. Cook v. Evatt (No. 2) [1992] 1 N.Z.L.R. 676.