The claimant alleged undue influence. As a young singer he had entered into a management agreement with the defendant which he said were prejudicial and unfair. The defendant argued that the ‘doctrine of restitutio in integrum applied only to the rescission of contracts for misrepresentation or mistake, and did not apply to equitable relief where contracts had been entered into as the result of undue influence.’
Held: Rescission might still be granted if practical justice can be achieved. Agreements obtained by undue influence were set aside even though the parties could not be restored to their original positions.
Dunn LJ said: ‘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 issued his writ he was not entitled to rescind the purchase, because he was not then in a position to return to the appellant 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, E.B. and E. 148. But it is necessary here to apply the doctrine of equity, and equity has always regarded as valid the disaffirmance of a contract induced by fraud even though precise restitutio in integrum is not possible, if the situation is such that, by the exercise of its powers, including the power to take accounts of profits and to direct inquiries as to allowances proper to be made for deterioration, it can do what is practically just between the parties, and by so doing restore them substantially to the status quo: Erlanger v. New Sombrero Phosphate Co., 3 App.Cas. 1218, at pp.1278, 1279, Brown v. Smith (1924) 34 C.L.R. 160, 165,169; Spence v.Crawford [1939] 3 All E.R. 271, 279, 280. It is not that equity asserts a power by its decree to avoid a contract which the defrauded party himself has no right to disaffirm, and to revest property the title to which the party cannot affect. Rescission for misrepresentation is always the act of the party himself: Reese River Silver Mining Co. Ltd. (Directors of the) v. Smith (1869) L.R. 4 H.L. 64, 73. The function of a court in which proceedings for rescission are taken is to adjudicate upon the validity of a purported disaffirmance as an act avoiding the transaction ab initio, and, if it is valid, to give effect to it and make appropriate consequential orders: see Abram Steamship Co. Ltd. v. Westville Shipping Co. Ltd. [1923] A.C. 773. The difference between the legal and the equitable rules on the subject simply was that equity, having means which the common law lacked to ascertain and provide for the adjustments necessary to be made between the parties in cases where a simple handing back of property or repayment of money would not put them in as good a position as before they entered into their transaction, was able to see the possibility of restitution in integrum, and therefore to concede the right of a defrauded party to rescind, in a much wider variety of cases than those which the common law could recognise as admitting of rescission. Of course, a rescission which the common law courts would not accept as valid cannot of its own force revest the legal title to property which had passed, but if a court of equity would treat it as effectual the equitable title to such property revests upon the rescission.’ and ‘This analysis of the authorities shows that the principle of restitutio in integrum is not applied with its full rigour in equity in relation to transactions entered into by persons in breach of a fiduciary relationship, and that such transactions may be set aside even though it is impossible to place the parties precisely in the position in which they were before, provided that the court can achieve practical justice between the parties by obliging the wrongdoer to give up his profits and advantages, while at the same time compensating him for any work that he has actually performed pursuant to the transaction.’
Fox LJ said: ‘Accordingly, it seems to me that the principle that the court will do what is practically just as between the parties is applicable to a case of undue influence even though the parties cannot be restored to their original position. That is, in my view, applicable to the present case. The question is not whether the parties can be restored to their original position; it is what does the justice of the case require? That approach is quite wide enough, if it be necessary in the individual case, to accommodate the protection of third parties. The rights of a bona fide purchaser for value without notice would not in any event be affected’.
Judges:
Dunn LJ, Fox LJ
Citations:
[1985] QB 428, (1984) 2 IPR 499, [1984] 3 WLR 448, [1985] 3 All ER 351
Jurisdiction:
England and Wales
Citing:
Approved – Alati v Kruger 29-Nov-1955
(High Court of Australia) The remedy of rescission is only available if the parties can be returned to their respective positions before the contract was made. Dixon CJ said: ‘It is not that equity asserts a power by its decree to avoid a contract . .
Cited by:
Cited – Halpern and Another v Halpern and others ComC 4-Jul-2006
The court considered whether a party can avoid a contract procured by duress in circumstances where he cannot offer the other party substantial restitutio in integrum.
Held: Unless the claimant could offer counter-restitution, the remedy of . .
Cited – Fiona Trust and Holding Corp and others v Privalov and others ComC 20-Oct-2006
The parties disputed whether their claim should be arbitrated.
Held: A claim as to whether the contract itself had been made was not one which could be arbitrated by provisions in that contract. It does not arise ‘under’ the contract. The . .
Cited – Halpern and others v Halpern and Another (No 2) CA 3-Apr-2007
The parties had settled by compromise a dispute about the implementation of a will before the Beth Din. It was now said that the compromise agreement had been entered into under duress and was unenforceable. The defendant said that rescission could . .
Cited – Imageview Management Ltd v Jack CA 13-Feb-2009
The appellant company acted for the respondent footballer in placing him with a football club. The respondent said that he had also taken a payment from the club, nominally for arranging a work permit. The respondent said this was improper. The . .
Lists of cited by and citing cases may be incomplete.
Contract, Undue influence, Equity
Leading Case
Updated: 20 April 2022; Ref: scu.244663