In the U.K., is rescission due to mere misrepresentation an entitlement? Or is it a discretionary equitable remedy?

Question

If a party to a contract has made a misrepresentation (including by omission), but not fraudulent misrepresentation, is this sufficient to entitle the innocent party to rescind the contract? Is it entirely within the innocent party's power to void the contract by their own election, as a common law right.

Or, is rescission as a remedy for non-fraudulent misrepresentation always a discretionary, equitable remedy, requiring a court order?

(For a bit of background about why the distinction between a common law entitlement and an equitable remedy matters, see What are equity and equitable remedies, especially the section on "Where this distinction can matter." I also note that in The Law of Rescission, the authors argue that the balance of authorities is that the innocent party only has the power at common law to rescind by election where the contract was procured by fraud.)

Answer 1

Common law rescission and equitable rescission are distinct

Rescission is available at common law and may require no court order to have effect. "To the extent that right to rescind is a form of 'self-help'... no court order may be required, as where a claimant rescinds a contract of sale at common law then recaptures the transferred asset" (Elise Bant, "Reconsidering the Role of Election in Rescission", Oxford Journal of Legal Studies, Vol. 32, No. 3 (2012), n. 1).

"Rescission involves the exercise of the right to terminate, either at law or in equity" (Sarah Worthington, "The Proprietary Consequences of Rescission", Restitution Law Review, Vol. 10 (2002), p. 29).

Rescission at common law is not available for mere non-fraudulent misrepresentation

This "right to rescind a transaction arises at common law in cases of fraud... and duress" (Bant, pp. 469-70; Worthington, p. 30). "Rescission in equity is more widely available" including for innocent misrepresentation (Worthington, p. 31).

The role of "election" is incoherent, but the dominant academic view is that election is what gives effect to rescission at common law, while a discretionary judgment of the court is what gives effect to rescission in equity

As for the distinction between this right and the equitable remedy of rescission, the authors of The Law of Rescission (Dominic O'Sullivan, Steven Elliott, and Rafal Zakrzewski) have characterized the jurisprudence as "impossibly incoherent" (as cited in Bant, pp. 479).

Bant describes three points on the spectrum as to the effect of election and the role of the court in making rescission effective (Bant, pp. 478-79)

1. The first view is that election "is always required for rescission, whether common law or equitable." Under this view, even rescission in equity is based on an act of the claimant, in which equitable title to anything to be restituted vests in the claimant as soon as they make their election.
2. The second view places equitable rescission (but not common law rescission) wholly in an act of the court.
3. The third "most extreme version" is that any kind of rescission (common law or equitable) is simply a "right to supplicate the court for relief." Under this view, "election has no independent proprietary effect."

Bant and the authors of The Law of Rescission are of the view that the second option is correct:

equitable rescission (except, perhaps, in the case of fraud, where equity acts in aid of the claimant's common law rights) is always an act of the court.

This view is well described by Worthington at p. 30-31.

Again, rescission at common law is available under very restricted circumstances. The flaw in contract formation must be fraudulent misreprsentation or duress. The subject matter that would be restored must be legal property (not equitable interests). And strict, actual unwinding must actually be possible (restitutio in integrum). "If all these conditions can be met, then rescission operates by the act of the party entitled to rescind; the intervention of the court is not necessary" (Worthington at p. 30, citing to Car & Universal Finance Company Ltd. v. Caldwell, [1963] QB 525). This immediately revests legal title to transferred assets in the claimant, allowing re-caption (which would otherwise have been conversion), voluntary re-delivery, or a claim in court to vindicate the legal right to the assets. See also Abram Steamship Co. Ltd. v. Westville Shipping Co. Ltd. [1923] A.C. 773, discussed in Janet O'Sullivan, "Rescission as a self-help remedy: a critical analysis", Cambridge Law Journal, Vol. 59, No. 3, p. 521. The court needed to decide whether one party's election "itself effected rescission" or whether this did not happen until judgment was entered. Lord Atkinson described the effect of common-law rescission:

if the other party to the contract questions the right of the first to rescind, thus obliging the latter to bring an action at law to enforce the rights he has secured for himself by election, and the latter gets a verdict, it is an entire mistake to suppose that it is this verdict which by itself terminates the contract and restores the antecedent status. The verdict itself is merely the judicial determination of the fact that the expression by the plaintiff of his election to rescind was justified, was effective and put an end to the contract.

"Rescission in equity is more widely available", including for innocent misrepresentation. There is no need at equity for the interest to be a legal interest (it can be an equitable interest), and there is no need for full unwinding to be possible. As an equitable remedy, rescission in this scenario is discretionary, and the remedy can "be moulded in accordance with the exigencies of the particular case" (Spence v. Crawford, [1939] 3 Ch. D. 271).

Answer 2

Recision is an equitable remedy

It is one of many remedies a plaintiff might choose for misrepresentation and is subject to the following:

• restitution must be possible and equitable.
• the plaintiff must have "clean hands".
• the plaintiff must not have affirmed the contract after becoming aware of the misrepresentation, for example, by continuing to receive the benefits of the contract.
• third-party rights would be unaffected.
• an executed contract cannot be rescinded - probably. This precedent has been criticised but, AFAIK, not overturned except by legislation in some jurisdictions.
• lapse of time: laches applies as this is an equitable remedy.

Note that this remedy is available when the misrepresentation has become a term of the contract and is "actionable", not where it has caused the contract to be entered into by mistake: that makes the contract void and can be disaffirmed.

For completeness, misrepresentation can lead to any of the following:

1. It becomes a term of the contract: the innocent party may sue for damages or rescind for actionable misrepresentation but not both.
2. If it led to the contract being entered into by mistake, the contract may be void for mistake and can be disaffirmed.
3. It may become a collateral contract.
4. It may be an "actionable" misrepresentation, allowing recession. An actionable misrepresentation must be a) false, b) of fact, not opinion, c) addressed to the person misled, d) intended to induce the plaintiff to enter the contract and must have been material in them doing so.
5. An innocent misrepresentation may give rise to a claim in the tort of negligence.
6. An deliberate misrepresentation may give rise to a claim in the tort of deceit.
7. Some jurisdictions provide statutory remedies.