2.8.1 The Right to Revoke the Contract

The remedy of rescission is, in principle, available for all classes of operative misrepresentation. When a person has been induced to enter into a contract by a misrepresentation of any description, the effect on the contract is not to make it void, but to give the misled party an option either to avoid it or, alternatively, to affirm it.26


Rescission, however, is not merely a judicial remedy. The misled party can rescind WITHOUT seeking the assistance of the Court, and any property transferred to the representor under the contract will revest in the party who has so rescinded the contract. As a normal rule, rescission must be communicated to the other party.26A



However, under Section 2(2) of the U.K. Misrepresentation Act 1967, and under Section 45(2) of the Irish Sale of Goods and Supply of Services Act 1980:

Where a person has entered into a contract after a misrepresentation has been made to him otherwise than fraudulently, and he would be entitled by reason of the representation to rescind the contract, then, if it is claimed in any proceedings arising out of the contract that the contract ought to be or has been rescinded, the court or arbitrator may declare the contract subsisting and award damages in lieu of rescission, if of the opinion that it would be equitable to do so.


Such circumstances, however, are unlikely to exist in the case of an Endowment Mortgage Contract (or a similarly structured investment contract).

Also, as we have seen in Section 2.3.4 (a), when the misrepresentation is effected by a breach of duty to disclose, in cases where a fiduciary or confidential relationship exists the injured party will be entitled to rescind the contract or transaction, while in cases where a special relationship exists (under the principle enunciated in Hedley Byrne) the injured party will (generally) not be entitled to rescind.27



Coupled with the right to revoke the contract there may be a right to sue for damages for any loss suffered as a result of the misrepresentation. For example, in the case where a party enters into an Endowment Mortgage Contract (or any other investment-type contract) as a result of a misrepresentation, it is clear that merely exercising his right to rescind would offer him no proper remedy. He would also require payment of ‘damages’.


How, then, are these ‘damages’ to be assessed?



 

26, 26A Beatson, Burrows and Cartwright, Anson’s Law of Contract, (29th ed.), p. 311.

27 Beatson, Burrows and Cartwright, Anson’s Law of Contract, (29th ed.), p. 342.

 

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