Rescission. Sounds painful? It is! Rescission is an equitable remedy for termination (meaning it doesn’t need to appear in the contract or in statute, but it may still be available). It is reserved for cases where the defaulting party has really “done wrong” (for example, lied to the other party to induce them into entering the contract). There is a high standard to be met in order to persuade the Court to award an equitable remedy, and rightly so because the consequences are far more onerous that “normal” breach of contract damages. To explain, it is easier to compare:
Termination leading to “normal” damages
The “defaulting” party has to put the “innocent” party in the position it would have been in had the “defaulting” party performed the contract properly. As a very basic example, the employer pays the contractor £2m to carry out the works. The “defaulting” contractor leaves the works in a defective state. It costs the “innocent” employer £100k to correct these defects. The “defaulting” party should pay the “innocent” party £100k.
The “defaulting” party has to put the “innocent” party in the position it would have been in had the contract never been signed. As a very basic example, the employer pays the contractor £2m to carry out the works. The “defaulting” contractor leaves the works in a defective state. The “defaulting” contractor has to (1) pay back the £2m to the employer AND (2) remove ALL the works that it has carried out and (3) leave the land in the same state it was before the contractor started the works.
As you can see, rescission is significantly MORE onerous than usual termination damages.
We have recently seen a rare example of an employer attempting to have a contractual right to rescission. This would effectively get round the high standards required by the Courts to be met, in order to be entitled to such a remedy. This is extremely rare for a building contract and extremely onerous for a contract. Contractors: watch out for such clauses and be very wary of signing a contract containing them!
To download the full newsletter, click here
These notes have been prepared for the purpose of an article only. They should not be regarded as a substitute for taking legal advice.