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Bant, Elise --- "Reconsidering the Role of Election in Rescission" [2012] UMelbLRS 2

Last Updated: 9 September 2013

Reconsidering the Role of Election in Rescission
Elise Bant[∗]

This paper was first pubished in the (2012) 32(3) Oxford Journal of Legal Studies.

Abstract: While rescission and restitution are closely related, they are not identical concepts. The election requirement in rescission is a key feature that distinguishes that process from a claim for ‘simple’ restitution. This article considers the election requirement and concludes that it need not be restricted to its contractual operation within the law of unjust enrichment. Election could also play an important role in determining the availability of proprietary restitution for unjust enrichment.

Keywords: common law, property rights, equity, restitution, unjust enrichment, contract law

1. Introduction

The view that the doctrines of rescission and the remedy[1] of restitution are related has gained widespread support in recent years. But they are not identical concepts. In particular, the requirement of claimant election[2] in rescission is a key feature that distinguishes that process from a claim for ‘simple’ restitution. The purpose of this article is to consider the election requirement with a view to determining its role, purpose and continued relevance in the light of the developing law of restitution. In particular, the article considers whether election could find fresh justification as means of determining the availability of proprietary[3] restitution for unjust enrichment.[4] The article concludes by revisiting, in the light of the earlier analysis, how rescission and restitution ‘fit’ together as responses to unjust enrichment and how some of the more difficult aspects of the claimant election requirement might be settled.

1. Rescission and Restitution
   

Rescission is the process of effecting the reversal or unwinding of a transaction ab initio so as to restore the parties to the status quo ante.[5] Rescission effects restitutionary relief in the sense of enabling or effecting[6] the return of any benefit or its value transferred as part of the impugned transaction.[7] Rescission is commonly encountered in the context of executed or partly executed contracts. Here the process of rescission involves ‘avoiding’ or setting aside the contract as a precondition of the claimant obtaining restitution of the benefits that have been transferred in performing the contract. More broadly, rescission of purely executory contracts can also be regarded as effecting restitution. Entry into a contract by a claimant inevitably confers valuable contractual rights on the defendant. These valuable contractual rights can be the proper subject of an order for restitution, just as can other purely personal rights commonly the subject of restitutionary claims, such as rights in a bank account. Although it has been argued that in the case of executory contracts, rescission involves the destruction rather than the giving back of contractual rights,[8] the effect is still to undo the benefit conferred on the other party. The match might not be precise but any distinction seems too fine to be of practical significance. Finally, outside the contractual context, rescission also applies in relation to deeds, gifts[9] and non-contractual conveyances[10] to enable or effect the return of the transferred benefit to the claimant. Although this non-contractual operation is less prominent than its contractual counterpart, as we will see it assumes particular importance when thinking about the extent of the operation of the doctrines of rescission and how rescission ‘fits’ with cases of simple restitution.

In all these cases, the consequences of rescission can be fairly safely described as restitutionary, at least in part. Rescission, like restitution, involves reversing or restoring benefits transferred pursuant to the impugned transaction. In rescission, the ultimate degree and form of restitution is subject to the further requirement of restitutio in intergrum. This requires that the claimant make counter-restitution of any benefits received pursuant to the impugned transaction: rescission of contracts, for example, is always and automatically a mutual process of restitution and counter-restitution. A similar ‘defence’ (or set-off) requiring counter-restitution by the claimant of benefits received from the defendant applies to claims for simple restitution.[11] Further, the requirement of restitutio in integrum extends to other prejudicial changes of circumstances suffered by a party to the impugned transaction, which change has not conferred a benefit on the other party. In this aspect, the doctrines of rescission incorporate both a requirement of mutual restitution and counter-restitution, as well as a quite sophisticated version of a change of position defence.

There are further similarities between rescission and restitution. A limited right to rescind a transaction arises at common law in cases of fraud[12] (open to characterisation both as a legal wrong and a form of induced mistake) and duress.[13] A right to rescind also arises in equity in a far wider range of circumstances such as misrepresentation (including innocent misrepresentation),[14] unilateral mistake,[15] duress,[16] undue influence,[17] unconscionable dealing[18] and breach of fiduciary duty.[19] This series of ‘triggers’ to rescission suggests that, like restitution, a right to rescind a contract, deed, gift or other transaction arises both in response to wrongs (breaches of some legal or equitable duty) and in response to unjust enrichment (under Anglo-Australian law, established where there is an enrichment, at the expense of the claimant, as the result of some recognized ‘unjust factor’ such as mistake, undue influence or duress).[20] That is, rescission is multi-causal.[21] However, for completeness, it should be noted that, where contracts and deeds are involved, the law imposes an additional requirement for rescission, over and above the presence of some causative unjust factor. This is to prevent rescission from being available too readily and thus upsetting the security of the defendant’s bargain or receipt. Common examples include, but are not restricted to, requirements that the defendant has been aware of, or been responsible for, the relevant vitiating factor.[22] But once those additional requirements are factored in, it becomes fairly clear that rescission of contracts for duress, undue influence and certain kinds of mistake can be regarded as a form of restitutionary response to claims arising in unjust enrichment.

2. Valuing Money Awards Consequent on Rescission
   

On the preceding analysis, the relationship between rescission for unjust enrichment and restitution for unjust enrichment appears extremely close. However, the requirement of claimant election in rescission presents a clear departure from the usual ‘simple’ unjust enrichment paradigm of the mistaken payment. There is no independent election requirement in a simple mistaken payment claim. The potentially anomalous nature of the election requirement becomes particularly apparent where restitution of benefits obtained under a rescinded transaction is made through monetary awards or allowances, in lieu of or in addition to restitution in specie. Where this pecuniary rescission is possible,[23] the question immediately arises how—in particular, at what point—the money award should be valued. The range of possible answers underscores some significant differences between personal restitution and pecuniary rescission for unjust enrichment that require rationalisation.

(i) Valuing personal restitution

In the usual case of a vitiated transfer (say, a mistaken payment), the cause of action in unjust enrichment is complete at the point of receipt.[24] The claimant’s prima facie right to restitution arises at that point. Consistently with this analysis, benefits are valued for the purposes of determining the claimant’s prima facie right to personal restitution as at the date of receipt.[25] Subsequent decreases in value fall to be considered pursuant to the change of position defence.[26] The exception to this approach arises where the claimant switches to a proprietary claim that the defendant holds the benefit on trust for her. If the claim for proprietary restitution succeeds, then the defendant must make restitution of the asset whatever its value might be. Its value at the date of the court order may be considerably more or less than at the date of its original receipt. This is a well-accepted characteristic of proprietary claims. If a personal remedy is given as a true substitute for proprietary relief, then it should in principle be the value of the asset at the date of court order.[27]

(ii) Valuing pecuniary rescission: point of election

However, when we turn to rescission, we see that, as a matter of principle and precedent, a number of different valuation dates jockey for position as the primary point for valuation of monetary awards consequent on rescission. Firstly, it is relatively uncontentious that the right to rescind a transaction for fraud or duress, whether at common law or in equity, must be exercised before the claimant may obtain restitutionary relief. That is, a right to rescind does not trigger the defendant’s liability to make (either personal or proprietary) restitution until the claimant elects to rescind the transaction.[28] So the point of election, rather than receipt, should in theory constitute an important date for valuation of benefits now subject to a vested right to restitution. This raises a troubling distinction between pecuniary rescission and personal restitution. Given that it is possible both to rescind gifts vitiated for fraud or duress (with the subsequent possibility of pecuniary rescission) and to obtain simple personal restitution of gifts made pursuant to (an induced) mistake or duress, it seems odd potentially to have different valuation dates at play in virtually identical scenarios. However, notwithstanding any attraction as the relevant valuation date in point of principle, as a matter of practice the date of election is rarely identified as the critical point for valuation purposes of the original benefit received.[29] It is much more likely to mark the point of departure for the restitutio in integrum enquiry, a matter we will return to below.

(iii) Point of Initial Receipt

By contrast with date of election, there are many cases in which allowances have been awarded (in the form of rent) for the use of land by a claimant pursuant to a transaction impugned for fraud, calculated from the date of possession.[30] A similar approach to valuation is discernable in relation to the calculation of allowances for interest on money paid pursuant to a rescinded transaction, which usually starts to run from the date of payment.[31] Likewise, allowances for deterioration (which provide a monetary sum to ensure that there is complete restitution) are usually calculated by reference to the value of the asset as at the date of its receipt.[32] Adopting initial receipt as the relevant starting point for valuing pecuniary restitution on rescission avoids inconsistency between restitution and rescission.

(iv) Point of sale

The ‘use’ and ‘deterioration’ cases aside, the most common point of valuation adopted for pecuniary rescission where the original asset has been sold is the point of sale.[33] This provides a third alternative to point of initial receipt and point of election, and again distinguishes rescission from the position with respect to simple restitution for unjust enrichment. There are a number of possible reasons for preferring the amount obtained at point of sale over the other two options. It could be sought as a matter of convenience or tactics: it is much easier for a rescinding claimant to point to undoubted value received in the hands of the defendant than try to prove that the benefit was worth a greater amount at the point of rescission.[34] Alternatively, the right to rescind could be considered to entitle a claimant to trace through the exchange of the original asset for the sale proceeds.[35] But if the claim is a proprietary one with respect to the sale proceeds, they must (presumably) be shown to subsist as an identified and discrete fund until the point of trial. The enquiry cannot stop at the point of sale. Many of the cases choosing the point of sale as the relevant valuation date do not even begin to engage in that enquiry.[36] Alternatively a personal right valued by the proceeds of sale may arise where the right to rescind has been exercised prior to sale. Assuming (as is discussed below) that election serves to vest title to the asset in the claimant, any subsequent sale will constitute an infringement of the claimant’s vested legal or equitable proprietary interest in the asset[37] and damages can be sought for the wrong committed against the claimant. On this approach, the amount may constitute the value of damages for conversion (if rescission occurred at common law) or compensation for breach of trust (if in equity).[38] But again, courts often appear to choose the point of sale as the relevant date notwithstanding that election likely occurred after the property was sold.[39] Where this is the case, the defendant was entitled to deal with the asset and rescission cannot retroactively make the defendant a wrongdoer.[40] Finally, it may be that a claimant has the right, on substitution of the original asset for another (such as sale proceeds), to switch to a personal claim for simple restitution of the value of the substituted asset, independent of any wrong such as conversion or breach of trust.[41] The sale marks a subsequent ‘receipt’ for the purposes of a fresh claim in unjust enrichment. This analysis would explain why it seems unnecessary to trace the continued existence of the sale proceeds to the point of trial: the claim is for the personal value of the substitute asset valued as at the date of its receipt by the defendant (the point of sale).

(v) Point of court order

The final valuation possibility for pecuniary rescission is that the benefit should be valued as at the date of judgment/court order. This would be the true equivalent of proprietary restitution and would reflect the most complete monetary substitute for restitution of the claimant’s vested rights. But this seems hardly ever to be the measure of pecuniary rescission adopted by the courts.[42] A rare example may be Koutsonicolis v Principe (No 2).[43] An elderly couple purchased a house from the defendants and two years later sought to rescind the contract by letter to the defendants on the ground that the defendants had fraudulently concealed major defects. The defendants resolutely refused to take back the house and return the purchase price to the claimants. White J awarded the claimants the present day value of the settlement monies, to account for the severe inflation that had occurred in the intervening years. However, his Honour noted in making the award that the claimants had not sought interest on the amount and that the defendants had had the use of the claimants’ money for the six years prior to court order. So it is uncertain whether the amount was a proxy for restitution of the original amount with interest.

The difficulties in determining the correct measure of pecuniary rescission, and the potential differences in measure between rescission and restitution for unjust enrichment, demonstrate the need for much closer examination of the role and purpose of the primary difference between the two models of restitution for unjust enrichment: namely, the election requirement. It is only when the roles and justifications for election are clarified that it will be possible to identify how the two models of restitutionary relief might be reconciled.

2. Unpacking election

1. How is Election Effected?

The mechanics of the election requirement must briefly be outlined. We will start with election to rescind at common law, which is relatively uncontentious compared to equitable rescission. At common law, a transaction voidable for fraud or duress is valid until rescinded. Once free of the vitiating factor supporting the right to rescind, the claimant must choose whether to allow the transaction to stand or to set it aside. She is under no obligation to rescind: she can affirm the transaction if she chooses. There is an ongoing ambiguity about the precise degree of knowledge required to effect election. In particular, it remains unclear whether the claimant must have actual knowledge of her right to rescind, or must only know the facts giving rise to her right, in order to be bound by her act.[44] We will return to this ambiguity below when considering the possible continuing roles for election in rescission.

Election must generally be effected by communicating (giving notice of) an unequivocal intention to reject, revoke or disaffirm the transaction to the other party. Communication is usually required, even as regards fraudulent defendants.[45] Notice of election can be effected in a myriad of ways: by words, letter, by commencement of proceedings[46] – any method that demonstrates the claimant’s decision no longer to abide by the impugned transaction. No particular form of words is required: a demand made to the defendant for repayment of a sale price, or demanding the return of a gift are clear indicators of the claimant’s election to rescind because of their fundamental inconsistency with the extant transaction. Likewise the kinds of action that can unequivocally indicate a decision no longer to support a voidable transaction are in theory myriad: a failure to convey promised property where time is of the essence, a decision to take up employment elsewhere in breach of an exclusive contract for services, changing the locks on leased premises, these are all the sorts of behaviours that would unambiguously indicate the revocation of consent at the heart of rescission.[47]

The notice requirement in election is however subject to the longstanding rule that election pursuant to a common law right to rescind can be effected by recaption: that is, by simply repossessing the asset transferred under the impugned transaction.[48] What would otherwise be an act of conversion is justified because, at common law, election effects an immediate re-vesting of legal title to the transferred asset in the claimant. Recaption simultaneously effects election and rescission in the one act of repossession. Clearly, recaption may be effected without notice to the defendant, although presumably a defendant will, in most cases, come to know of the event within a reasonable period of time.

2. What does Election do?
   

(i) Election and contracts

Election is a concept found throughout the law in a wide variety of circumstances. The one label shelters a variety of legally significant choices. Sometimes, for example, election indicates a choice between remedies, as where a claimant elects between compensation and restitution for breach of duty.[49] Sometimes it is concerned with the choice between inconsistent rights. Where there is a contract on foot that is subject to a party’s right to rescind, it is this conception of election which is in issue. Where extant contracts are on foot, the inconsistent rights potentially in play are striking. The claimant must choose between her contractual rights to continued performance or her right to set aside the transaction (thereby giving up her contractual rights to performance) and obtain restitution of benefits transferred. The claimant cannot have her cake and eat it too.[50] The same role can be viewed from a slightly different perspective. Election operates to set aside any contract that would otherwise preclude a claimant’s right to restitution because the extant contract would justify the defendant’s retention of benefit. If a defendant is contractually entitled to a benefit, it is difficult to say that his retention of the benefit is ‘unjust’.[51] Election in this way operates to remove what would otherwise operate as a bar to restitution and serves directly to address the fear that restitution for unjust enrichment may serve to undermine valid contractual bargains.[52]

In the contractual context, therefore, election clearly serves valuable roles. However, we have seen that rescission also operates with respect to gifts, deeds and non-contractual conveyances.[53] Here the characterisation of election as a choice between inconsistent rights is much less obviously apt.[54] Election here operates to mark a decision to set aside a transfer of property and obtain restitution of the benefit or its value. But this is the same choice that must be made with any simple claim for restitution of unjust enrichment: the choice whether to seek restitution or to let the transaction stand. And we have seen that simple restitution for unjust enrichment has no election requirement. Does election in this wider, non-contractual context serve, or potentially serve, any useful role? Two further purposes can be discerned from the cases.

(ii) Election and restitutio in integrum

Firstly, a practical consequence of election (by notice) as a condition of rescission for fraud or duress, whether in a contractual or non-contractual context, is to identify the point at which restitutio in integrum must be possible and thus the outermost reaches of any change of position defence.[55] At common law, the claimant must be in a position to make precise counter-restitution at the point of election.[56] Equity took a more flexible approach to the enquiry, being prepared to make detailed assessments of each party’s changes of position in order to make necessary adjustments and allowances effective to restore them in substance to the status quo ante. This assessment exercise takes the point of election as an important marker for adjustment.[57] In particular, prejudicial changes of position on the part of the defendant following notice of the claimant’s election to rescind may be regarded as having been taken at the defendant’s risk.[58] They thereby fall outside the scope of the enquiry that aims to restore the parties in substance to the status quo ante.

(iii) Election and proprietary restitution

Secondly, and most significantly for present purposes, election could be seen as a mechanism or trigger for proprietary restitution, vesting legal (if rescission at common law)[59] and equitable (if in equity)[60] title to the transferred asset in the claimant.[61] We have seen that election at common law (for example, by way of recaption) operates to vest legal title automatically in the claimant. Proprietary rescission in this context occurs by act of the claimant. In equity, the position is more opaque. There is considerable support in the authorities and from commentators for the proposition that where rescission for fraud or duress is not permitted at common law (because, for example, precise restitutio in integrum is impossible) equity intervenes to enable rescission and to vest equitable title in the claimant. The proprietary effect of equitable rescission in this context is an automatic consequence of election: it is from, and only from, the date of election that equitable title to the asset vests in the claimant. Rescission on this analysis is also the act of the rescinding party, the role of the court being to adjudicate on the effect of the act and to make any necessary consequential orders. The leading Australian authority of Alati v Kruger[62] provides an excellent example of this analysis:

Rescission for misrepresentation is always the act of the party himself : Reese River Silver Mining Co. v Smith (1869) LR 4 HL 64, at p 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) AC 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 restitutio 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 recognize 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.

Outside the context of fraud and duress, however, the role of election in equitable rescission is far less clear. On the one hand, there is considerable authority supporting the view that election is always required for rescission, whether common law or equitable.[63] On this approach, rescission in equity is always an act of the claimant, vesting equitable title to the transferred asset in the claimant from the moment of election.[64] However, there is also considerable support for the view that rescission in equity for reasons within its exclusive jurisdiction is always the act of the court.[65] On the most extreme version of this analysis, the right to rescind is simply a right to supplicate the court for relief. On this approach, claimant election has no independent proprietary effect beyond that determined by the court in its discretion, on hearing the parties to the claim.[66] If correct, it means that in the absence of some other reason justifying an election requirement, a positive election requirement is otiose. The most claimant election can achieve is to signal that the claimant has not affirmed the transaction or waived her right to seek the court’s assistance in rescinding the transaction, and to act as a practical limitation on the protection that might otherwise be afforded to a defendant’s change of position. Any proprietary consequences of rescission are in the discretion of the court and effected by its order.

In a rigorous review of the authorities concerning election for equitable rescission, the learned authors of The Law of Rescission have concluded that they are impossibly incoherent.[67] This analysis assumes that view is correct, with the further consequence that, in the circumstances, the matter must be approached from the position of broader principle and policy. The ultimate conclusion reached in The Law of Rescission is that 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.[68] For present analytical purposes, however, the alternative view is adopted as correct, namely that claimant election may operate to vest equitable title to the transferred asset in the claimant from the moment of election.

It is possible to find a strong principled argument for this proprietary conception of the role of claimant election.[69] We have already seen that election in a contractual context revokes the claimant’s consent to the contract and both enables and justifies her right to obtain restitution of benefits transferred under the contract. Transfers of property, just like contracts, are conditional on the transferor’s intention—in the case of transfers, the transferor must intend to pass title. Where the transferor’s intention to transfer was impaired (by any legal or equitable vitiating factor), the transfer is effective to give the defendant the full legal beneficial title to the asset.[70] But the transfer is voidable at the instance of the transferor. A claimant to such a vitiated transfer is entitled to revoke her consent to the transfer of title and obtain a proprietary interest in the asset. This analysis both explains and justifies the availability of proprietary restitution in cases of vitiated consent transfers.

100. Who does an election requirement protect?
     

It is immediately apparent that the three objectives of election identified above, namely its contractual role, change of position aspect and proprietary effect, do not appear to be co-extensive with one another. A contract may be rescinded notwithstanding that no property has passed under it.[71] Change of position considerations apply both to rescission and to simple restitution of unjust enrichment. And a transfer of title can be rescinded notwithstanding that it was by way of gift, not contract. This suggests that election in the context of rescission may be operating to protect different interests, which may in turn be protected through mechanisms other than election. It follows that in order to determine in what circumstances election is properly a pre-requisite to restitutionary liability, those interests must be identified and the effectiveness of election as a mechanism for protecting those interests assessed.

(i) Claimant

First, an election requirement arguably gives effect to a claimant’s autonomy. It affords her a choice whether to rescind or affirm the transaction, thereby according maximum protection to her freedom of choice/autonomy. But that also seems to be the case with ‘simple’ restitution. A claimant does not have to bring a claim for restitution, after all, if the completed transaction works in her favour. And if she chooses to seek restitution, no election beyond the bringing of her claim is required. Additionally, however, election on the foregoing analysis further serves as a trigger for proprietary restitution, thereby enabling the claimant to get back the precise benefit conferred (or its traceable substitute). This can be seen as a more perfect form of restitution and therefore supporting the claimant’s rights.[72] On the other hand, the election requirement also operates as a condition or limitation on obtaining a vested trust right to the transferred asset (compared to other models of proprietary rights, such as the immediate vested model in Chase Manhattan Bank NA v Israel-British Bank (London) Ltd[73], or the knowledge-based constructive trust in Wambo Coal Pty Ltd v Ariff[74] discussed immediately below). The conclusion must be that although an election requirement affirms a claimant’s autonomy, it must also be seeking to accommodate other interests.

(ii) Other party to the original transaction

An election requirement no doubt assists in notifying original recipients of assets transferred by a claimant of the danger of impending liability or the risk of uncompensated loss. For example, a defendant recipient of an asset transferred as a result of her duress[75] will, on election, be on notice of the danger in dealing with the asset and thus committing conversion. Likewise, if rescission occurs in equity and a trust arises over the asset, notice of election protects the original recipient still holding the asset from unwittingly dealing with the asset in such a way that she becomes personally liable for its loss. Election further gives notice to defendant parties of contracts that they are no longer obliged to perform.

However, it will be recalled that notice does not always appear to be required for a valid election to occur. Recaption and certain limited cases of fraud are exceptions. In Car and Universal Finance Co Ltd v Caldwell,[76] the defendant sold a car to a fraudster (Norris), who on-sold the car to a firm of motor-dealers who had notice of the fraud. The car was eventually sold to the claimant, a bona fide purchaser without notice of the fraud. On realising he had been duped, the defendant notified the police and automobile association and sought to contact the fraudster, who had absconded and could not be located. When the car was eventually located, the claimant and defendant both laid claim to it. In interpleader proceedings, the key question was whether the defendant’s actions had been effective to rescind the sale at common law prior to the sale to the defendant. If so, legal title had revested prior to sale to the defendant and the claimant was entitled to the car. If not, the claimant’s right to rescind the transaction at common law was extinguished by its sale to the defendant.[77]

In considering whether actual communication was required, it was the interests and position of the other party to the original transaction that was regarded by the Court of Appeal as paramount. Thus Upjohn LJ stated that communication was generally required because ‘the other party is entitled to treat the contractual nexus as continuing until he is made aware of the intention of the other to exercise his option to rescind.’[78] And Sellers LJ expressed that ‘the position has to be viewed, as I see it, between the two contracting parties involved in the particular contract in question.’[79] Their Lordships did not explain the particular interest being protected. However, the focus probably reflects a concern to protect contracting parties’ security of contract and to protect them from harm arising from detrimental changes of position subsequently made in reliance on the transaction (including in further performance of any contractual obligations). However, their Lordships also noted that notice was not always required, as evidenced by the example of recaption.[80] Given that communication was not an absolute requirement, the Court considered that an exception to the usual notice requirement was called for where the claimant had taken all reasonable steps to contact the other party, the other party was a fraudster and had deliberately taken steps to avoid contact. In those circumstances, because the fraudster would already be expecting rescission and had deliberately evaded contact with the claimant, the protection otherwise offered through the notice requirement could safely be waived.

The somewhat convoluted reasoning in this case highlights the objections to justifying the role of election solely in terms of considerations applicable to parties to the contract. The protective role played by notice will always be redundant for fraudulent defendants who are responsible for the vitiating transfer and thus well aware of the claimant’s impaired consent. Election here is not required to protect the defendant from unknowing restitutionary liability, because he already has knowledge of the insecurity of his receipt. Why not, then, simply remove the requirement in all cases of fraud? The fact that it has always been a requirement for fraud suggests that, contrary to the assumption in Caldwell, the election requirement is also concerned to protect parties other than the original party/ies to the transaction. However, if that is correct, then the notice requirement is not terribly effective. We have seen that election traditionally must be made by giving notice to the other party to the original transaction. A third party defendant who takes the benefit of the impugned transaction from the original recipient may not receive that notice. In that respect, a broadly available change of position defence would arguably protect that defendant from unjust enrichment claims adequately, and indeed better than a notice requirement.[81] The one exception where change of position will not suffice is where a contract is still enforceable between the original contracting parties. In that case, the defendant’s interest goes beyond security of receipt (the natural focus of the change of position defence) to the security of his bargain. Election plays a crucial independent role in such a case in limiting the relevance of security of bargain to dealings with the subject matter of the contract before the claimant elected to rescind.

(iii) Third Parties

That leaves third parties (including those who ultimately become defendants) who obtain competing proprietary rights in the transferred benefit. As Dr Häcker’s work demonstrates, allowing a personal right to restitution against the original recipient does not affect third party rights.[82] A good example in the Australian context is Hartigan v Krishna Consciousness Incorporated.[83] The defendant recipient of property had onsold it by the time the claimant sought to set aside the transaction for undue influence. Bryson J of the New South Wales Supreme Court did not hesitate to order the defendant to make restitution of the value of the property (assessed as at the point of sale). The third party’s rights in that case were unaffected by rescission. It is only where rescission is proprietary that third parties are affected.[84] Requiring the claimant to elect as a precondition of proprietary restitution means that vested third party interests in assets the subject of attempted rescission are more likely to prevail over the claimant’s ‘inchoate’[85] proprietary rights. This is because, prior to election, the claimant’s right to obtain proprietary restitution consequent on rescission is far more fragile. As regards rescission in equity, this fragility is indicated by the moniker of the ‘mere equity’ used in contradistinction to the vested equitable interest (the ‘trust’). The unexercised equitable right to rescind is notoriously subject to defeat at the hands of a bona fide purchaser of an equitable interest (such as an equitable mortgage) over the asset the subject of the unexercised right to rescind.[86] Likewise, at common law, the claimant’s legal title vests only upon election: prior to that point, his entitlement to election and obtain a vested legal title to the asset is liable to extinction at the hands of bona fide third party purchasers of the legal title to the asset.[87] The relative fragility of proprietary restitutionary rights conditional on election, and hence relative protection of competing third party interests, is apparent and effective, whether or not the third parties themselves receive notice of the election. So, the requirement of election on this view serves as a limitation on the claimant’s right to proprietary restitution to protect third party interests.

3. Conclusion
   

1. When Election is Required
   

This analysis suggests a potential avenue for reconciling the rescission and restitution case law. It indicates that an election requirement is of considerable value to third parties where proprietary restitution is sought, or to the other original party to transaction where a contractual bar to restitution must be overcome. In other cases, a simple model of personal restitution encompassing a change of position defence adequately addresses the interests of all relevant parties to a claim arising out of unjust enrichment.

2. Election and Proprietary Restitution
   

The analysis also suggests some ways of addressing continuing ambiguities surrounding election in rescission. Where election by the claimant is required to trigger a proprietary right, (as opposed to avoid a contract, for example), it may not always be necessary for the election to have been communicated. What is crucial, if third party rights are to be protected, and for the point at which their protection ends to be clearly identified, is an unequivocal publication (a notorious or overt act) by the claimant that a proprietary right to the transferred asset is invoked. This understanding supports the role of recaption, and the ‘exception’ created in Car and Universal Finance. Recaption is a very public and unambiguous assertion of proprietary rights to the repossessed asset. So is notification of a proprietary entitlement to the police.[88] On this analysis, notice to the other party to the immediate transaction is merely the mechanism to convert a private choice into a published act.

100. Election and the Personal Liability of Defendants
     

On the other hand, there is still a need for innocent defendants to be protected against unwittingly attracting personal liability for having dealt with assets the subject of the right to rescind.[89] We have seen that the change of position defence provides protection to unjust enrichment defendants who change their position before election occurs. The difficult case is where the change occurs post-election and following the vesting of proprietary rights in the claimant. Conversion has never been subject to a change of position defence. On the other hand, personal liability for conversion should not pose a problem following recaption: the claimant’s repossession of the asset should automatically preclude the defendant from subsequently dealing with the asset and thereby becoming liable in conversion. Turning to equity, it remains uncertain whether the change of position defence extends to claims made by a claimant arising out of her equitable proprietary rights that have vested following election.[90] If the defendant becomes a true trustee, so that any dissipation of assets constitutes a breach of trust, the change of position defence may not be available anyway because the defendant is a ‘wrongdoer’. A notice requirement, at least for non-fraudulent defendants, provides some warning of the potential dangers of dealing with the relevant asset. It still leaves third parties dealing with the asset following election exposed, because notice is usually effected to the original party to the transaction rather than subsequent dealers with the asset. But it may be simply too onerous on claimants to require notice of election to be given to any third parties dealing with the impugned asset as a precondition to obtaining a vested right to the transferred asset. In many cases, the identities of any third party will be unknown and unknowable.

On balance, the general requirement that election must be by way of unambiguous act, communicated to the other party seems (in the absence of extension of the change of position defence to vested trust cases) a justifiable compromise position between the competing interests of claimant, defendant and third parties. Long term, however, the position of parties who are exposed to personal liability for breach of trust following vesting of equitable title on rescission may be better addressed by uncoupling the notice and election requirements. The question of election would then become solely whether there has been an unequivocal published and overt act of choice, in which the fact of communication may play a supporting but not independent role. Personal liability for breach of trust, on the other hand, would require knowledge (rather than notice) of the trust on the part of the defendant. This proposition should not, however, be thought to support knowledge as an appropriate requirement for either personal or proprietary liability in unjust enrichment.

4. Election and the Claimant’s Knowledge of her Right to Rescind
   

The foregoing analysis may also lend support to the view that a rescinding claimant must only be aware of the facts supporting her right to rescind, rather than the right itself. This is because it seems undesirable that competing third party interests in the subject asset should be adversely impacted by a claimant’s lack of perspicacity, or be susceptible to a claimants’ perjury as to the state of her knowledge.[91] The claimant’s right to ‘upgrade’ her claim from one of personal restitution to proprietary rescission, at the expense of competing third party interests, should be conditional on her declaring her election. The longer she delays, the greater the likelihood her right will be lost.

5. Election and personal restitution
   

Finally, on this analysis, a claimant who does not elect proprietary restitution is not left without remedy: she remains entitled to personal restitution, subject to defences such as change of position.

In concluding, there is much that remains to be explored about the relationship between rescission and restitution of unjust enrichment. This article had examined but one small aspect, the difficult but intriguing requirement of claimant election in rescission. The purpose of the article has been to show that election need not be restricted to its contractual operation within the law of unjust enrichment. Election may also mark the point at which proprietary and personal remedies divide. The fact that is it possible to identify some principled role for election as a precondition for proprietary restitution does not mean that rescission must indubitably be adopted as the preferable model of proprietary restitution. But it does demand that a model of proprietary restitution that is contingent on claimant election must be fed into the debate about the availability of proprietary restitution in unjust enrichment. Otherwise, what has over the centuries served as a highly nuanced response to unjust enrichment scenarios runs the risk of being left out of the equation, at a considerable cost to the future development of the law.

[∗] Associate Professor of Law, Melbourne Law School. Email: e.bant@unimelb.edu.au. This paper forms part of a broader project with Michael Bryan, supported by the Australian Research Council, entitled ‘The Principles of Proprietary Remedies’ and draws from the materials prepared for and in response to a colloquium held at Melbourne Law School on 9 December 2010 as part of that project. My sincere thanks go to the colloquium participants for their very helpful insights, our research assistants (Chris Tran, Emma Poole, Cait Storr and most recently, Catherine Farrell) and to Michael Bryan, Robert Chambers, Birke Häcker and the anonymous referee for their comments on earlier drafts of this paper. I am also very grateful to the organisers (Sarah Worthington, Graham Virgo and Bill Swadling) of and participants in the seminars held at LSE, Cambridge and Oxford on 3, 4 and 7 May 2011 respectively, at which these and related issues were debated.

[1] The language of remedies is notoriously uncertain, see eg P Birks, ‘Rights, Wrongs and Remedies’ (2000) 20 OJLS 1. This paper generally adopts the definition of ‘remedy’ developed by R Zakrzewski, Remedies Reclassified (OUP 2005) ch 1, namely that a remedy is the rights that arise from a court order that replicates a pre-existing right. ‘The remedy of restitution’ is used in contrast to the events generating the right to restitution, which include unjust enrichment and wrongs. To the extent that a right to rescind is a form of ‘self-help’ it does not strictly fall within the adopted definition of a remedy, as no court order may be required, as where a claimant rescinds a contract of sale at common law then recaptures the transferred asset, see discussion further below at 2A and 2B(iii).

[2] This article refers to the rescinding party as the ‘claimant’ for convenience, although rescission is often raised by way of defence.

[3] The terms proprietary rights/interests are used in this paper to denote rights relating to specific assets, which rights are prima facie or at least potentially binding on third parties. For an extended discussion of the terminology, see E Bant, ‘Trusts, Powers and Liens: An Exercise in Ground-Clearing’ (2009) 3 J Equity 286, 288–90.

[4] In this respect, this article builds in particular upon the illuminating work of Dr Birke Häcker: see in particular B Häcker, Consequences of Impaired Consent Transfers (Mohr Siebeck 2009) and B Häcker, ‘Proprietary Restitution after Impaired Consent Transfers: A Generalised Power Model’ (2009) 68 CLJ 324. Proprietary responses to wrongs such as breach of fiduciary duty are also highly contentious, see eg Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd (In Administration) [2011] EWCA Civ 347, [2011] 3 WLR 1153, however potentially raise different and further reasons that those applying to claims in unjust enrichment (for example, deterrence considerations) so must await separate treatment elsewhere.

[5] It thus stands in distinction to the confusing use of ‘rescission’ to indicate a right to terminate a transaction, which discharges the parties from future performance but does not affect accrued rights: see McDonald v Denys Lascelles Ltd [1933] HCA 25; (1933) 48 CLR 457 (High Court of Australia (HCA)) 476–77 (Dixon CJ); Johnson v Agnew [1980] AC 367 (HL).

[6] On the effects of rescission, see B Häcker, 'Rescission and Third Party Rights' [2006] RLR 21, 23−25 and B Häcker, 'Rescission of Contract and Revesting of Title: a Reply to Mr Swadling' [2006] RLR 106. For a critical view of the proprietary consequences of rescission at common law, see W Swadling, 'Rescission, Property, and the Common Law' (2005) 121 LQR 123.

[7] P Birks, An Introduction to the Law of Restitution (rev edn, Clarendon Press 1989) 163; D O'Sullivan, S Elliot and R Zakrzewski, The Law of Rescission (OUP 2008) paras 1.19–1.25. Rescission in the context of contracts is a process of mutual restitution and counter-restitution, involving a taking and giving back of benefits on both sides.

[8] AS Burrows, The Law of Restitution (2nd edn, Butterworths 2002) 57–58; see also G Virgo, The Principles of the Law of Restitution (2nd edn, OUP 2006) 29; L Smith, ‘Unjust Enrichment: Big or Small?’ in S Degeling and J Edelman (eds), Unjust Enrichment in Commercial Law (Thomson Reuters 2008) 35, 41–43. Professor Burrows appears in the third edition to be slightly more conciliatory towards the restitutionary analysis: see (3rd edn, OUP 2011) 17–20.

[9] Eg Allcard v Skinner (1887) 36 Ch D 145 (CA); Quek v Beggs (1990) 5 BPR 11,766 (New South Wales SC (NSWSC)); Louth v Diprose [1992] HCA 61; (1992) 175 CLR 621 (HCA).

[10] On the operation of rescission on conveyance, independent of contract, see B Häcker, ‘Causality and Abstraction in the Common Law’ in E Bant and M Harding (eds), Exploring Private Law (CUP 2010) ch 9.

[11] The unjust factor giving rise to the right to counter-restitution is generally failure of basis: see eg Ovidio Carrideo Nominees Pty Ltd v The Dog Depot Pty Ltd [2006] VSCA 6 (SC Victoria – CA (SCV-CA)) [22] (Chernov JA), [34]–[50] (Nettle JA); R & Z Mazzei Nominees Pty Ltd v Aegean Food Import Export Pty Ltd [2006] VSC 210 (SCV) [45] (Osborn J); Kiwi Munchies Pty Ltd v Nikolitsis [2006] VCAT 929 (Victorian Civil and Administrative Tribunal) [23] (Macnamara, Dep Pres); Fensford Pty Ltd v Nour Pty Ltd [2006] VSCA 118 (SCV-CA) [40] (Nettle JA, Chernov JA and Ashley JA concurring); Ragi Pty Ltd v Kiwi Munchies Pty Ltd [2007] NSWADT 108 (Administrative Decisions Tribunal of New South Wales) [145]–[146] (the Tribunal); Cook’s Construction Pty Ltd v SFS 007.298.633 Pty Ltd [2009] QCA 75 (SC Queensland – CA) [139]–[140] (Fraser JA, Daubney JA concurring with Fraser JA and Keane JA). Distinguished in Lactos Fresh Pty Ltd v Finishing Services Pty Ltd (No 2) [2006] FCA 748 (Federal Court of Australia) [104]–[109] (Weinberg J). The defence or set-off is discussed in J Edelman and E Bant, Unjust Enrichment in Australia (OUP 2006) 347–48.

[12] Load v Green [1846] EngR 435; (1846) 15 M&W 216, 153 ER 828; Car and Universal Finance Co Ltd v Caldwell [1965] 1 QB 525 (CA).

[13] Dimskal Shipping Co SA v International Transport Workers Federation (The Evia Luck) (No2) [1992] 2 AC 152 (HL); Universe Tankships Inc of Monrovia v International Transport Workers Federation [1983] 1 AC 366 (HL) 383 (Lord Diplock), 400 (Lord Scarman), endorsed by McHugh JA in Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40 (New South Wales SC (NSWSC)).

[14] Alati v Kruger [1955] HCA 64; (1955) 94 CLR 216 (HCA); Redgrave v Hurd (1881) 20 Ch D 1 (CA).

[15] Taylor v Johnson [1983] HCA 5; (1982) 151 CLR 422 (HCA).

[16] Barton v Armstrong [1976] AC 106 (PC) 118; Halpern v Halpern [2007] EWCA Civ 291, [2008] 1 QB 195.

[17] Allcard v Skinner (n 9); Johnson v Buttress [1936] HCA 41; (1936) 56 CLR 113 (HCA).

[18] Louth v Diprose (n 9).

[19] Maguire v Makaronis [1997] HCA 23; (1998) 188 CLR 449 (HCA); McKenzie v McDonald [1927] VicLawRp 19; [1927] VLR 134 (VSC).

[20] The ‘unjust factor’ approach remains dominant ‘at least for the moment’: Deutsche Morgan Grenfell Group Plc v Commissioners of Inland Revenue [2006] UKHL 49, [2007] 1 AC 558 [21] (Lord Hoffman); Sempra Metals Limited v Commissioners of Inland Revenue [2007] UKHL 34, [2008] 1 AC 561. In Australia, see David Securities Pty Ltd v Commonwealth Bank of Australia [1972] HCA 57; (1992) 127 CLR 353 (HCA) and Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 (HCA). On a civilian approach to unjust enrichment, rescission would likely play a slightly different role, namely to remove the justification for the transfer (such as a contract or gift), thereby enabling restitution of the benefit retained without basis; see further at n 51.

[21] P Birks, ‘Equity in the Modern Law: An Exercise in Taxonomy’ [1996] UWALawRw 1; (1996) 26 UWALR 1, 32.

[22] Edelman and Bant (n 11) 184–88, 213, 229–31.

[23] This article thus uses ‘pecuniary rescission’ not only to indicate where a monetary award is made as a substitute for specific relief of chattels or land, but also to refer to the many use, deterioration and other cases (such as money transfers) where money awards are made to effect restitution or counter-restitution on rescission.

[24] Guardian Ocean Cargoes Ltd v Banco Do Brasil (No 3) [1992] 2 Lloyd’s Rep 193 (Com Ct); Coshott v Lenin [2007] NSWCA 153, followed in Sharjade Pty Ltd v RAAF (Landings) Ex-Servicemen Charitable Fund Pty Ltd [2008] NSWSC 1003 (rev’d on other grounds in Sharjade Pty Ltd v Commonwealth [2009] NSWCA 373) and Adamson v Miller [2008] FMCA 1173 (Federal Magistrates Court of Australia). The point when the cause of action is completed may be later, as when the condition or basis upon which a benefit was transferred subsequently fails: Edelman and Bant (n 11) 252–53. It may also be delayed where a defendant only subsequently accepts the benefit: discussed in J Edelman, ‘The Meaning of Loss and Enrichment’ in R Chambers, C Mitchell and J Penner (eds), Philosophical Foundations of the Law of Unjust Enrichment (OUP 2009) 226.

[25] Sempra Metal (n 20); David Securities (n 20); Dowell v Custombuilt Homes Pty Ltd [2004] WASCA 171 (SC Western Australia [98] (Murray J).

[26] E Bant, The Change of Position Defence (Hart Publishing 2009) 145–46.

[27] As preferred in the Australian proprietary estoppel case of Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101 (HCA). Very good discussions of this point, making the helpful distinction between an in personam monetary award of restitution (usually assessed by reference to value as at the date of receipt) and a monetary award in lieu of specific relief (assessed at date of court order) is found in Wilson v Fotsch [2010] BCCA 226 (British Columbia CA) [50], [54]–[55], [93] (Huddart JA, Bennett JA concurring) and McMillan v Johnson Estate [2011] BCCA 48 [41], [55], [59], [71] (Garson JA, Hall and Lowry JJA concurring). The distinction is also drawn in terms of ‘value received’ and ‘value surviving’, as to which see E Bant, ‘Rights and Value in Rescission’ in D Nolan and A Robertson (eds) Rights and Obligations (Hart Publishing 2011) ch 21.

[28] At the earliest: there is continuing debate over when rescission occurs in equity, see below at 2B(iii).

[29] The fiction that the transaction is avoided ab initio, taking the court back to the original transfer and its value at that date, might explain the lack of cases using point of election as the date of valuation, but would not justify it. On the limits of the ‘ab initio’ conceptualisation, see FAI General Insurance Company Ltd v Ocean Marine Mutual Protection and Indemnity Association Ltd (1997) 41 NSWLR 559 (NSWSC) 563 (Giles CJ); approved Brit Syndicates Limited v Grant Thornton [2006] EWHC 341 (Comm), [2006] Lloyd's Rep IR 487 [24] (Langley J).

[30] Eg Brown v Smitt [1924] HCA 11; (1925) 34 CLR 160 (HCA); Alati v Kruger (n 14).

[31] Eg Newbigging v Adam (1886) 34 Ch D 582 (CA) 585 (Bowen LJ); Alati v Kruger (n 14) 220 (Dixon CJ, Webb, Kitto and Taylor JJ).

[32] Erlanger v The New Sombrero Phosphate Company (1878) 3 App Cas 1218 (HL) 1278 (Lord Blackburn); Lagunas Nitrate Company v Lagunas Syndicate [1899] 2 Ch 392 (CA) 456 (Rigby LJ), discussed in Bant, ‘Rights and Value in Rescission’ (n 27) ch 21.

[33] Some examples include New Sombrero Phosphate Company v Erlanger (1877) 5 Ch D 73 (CA) 125; Lagunas Nitrate Company v Lagunas Syndicate (n 32) 434, affirmed on appeal: Erlanger v The New Sombrero Phosphate Company (n 32); Hartigan v International Society for Krishna Consciousness Incorporated [2002] NSWSC 810; McKenzie v McDonald (n 19).

[34] cf Spence v Crawford [1939] 3 All ER 271 (HL) 89 (Lord Wright): the ‘claimant who seeks to set aside the contract will generally be reasonable in the standard of restitution he requires’.

[35] Eg Small v Attwood (1832) You 407, 535–38; [1832] EngR 776; 159 ER 1051, 1103–04 (Lord Lyndhurst); El-Ajou v Dollar Land Holdings Plc [1993] 3 All ER 717 (Ch) 735 (Millett J); Daly v Sydney Stock Exchange [1986] HCA 25; (1985) 160 CLR 371 (HCA) 387–90. The reason why a claimant is entitled to unauthorised substitutions is highly contentious, some asserting that it is a matter of ‘property’ law, others that the right responds to the unjust enrichment of the defendant: compare eg Foskett v McKeown [2000] UKHL 29; [2001] 1 AC 102 (HL) 127 (Lord Millett) and P Birks, Unjust Enrichment (2nd edn, OUP 2005) 34–35, 98.

[36] Eg Hartigan (n 33); McKenzie v McDonald [1927] VicLawRp 19; [1927] VLR 134 (n 19).

[37] More precisely, in conversion, the claimant’s superior possessory right.

[38] The extent to which rescission defendants become subject to positive trust-like duties is a matter of some conjecture, but applicable duties likely include a Saunders v Vautier-style duty to convey: Saunders v Vautier [1841] EngR 629; (1841) 4 Beav 115, 49 ER 282 (aff’d [1841] EngR 765; (1841) Cr & Ph 240; 41 ER 482).

[39] Hartigan (n 33); McKenzie v McDonald (n 19).

[40] Lonrho plc v Fayed (No 2) [1992] 1 WLR 1 (Ch) 11, 12 (Millett J); Bristol and West Building Society v Mothew [1998] 1 Ch 1 (CA) 22–23 (Millett LJ). See also nn 29 and 70.

[41] This analysis is most obviously open if it is accepted that a claimant’s right to an unauthorised substitution arises in unjust enrichment: n 35.

[42] But see McCarthy v Kenny [1939] 3 DLR 556 (Ont SC).

[43] (1987) 48 SASR 328 (South Australian SC).

[44] Sargent v ASL Developments Ltd (1974) 131 CLR 634 (HCA).

[45] Newtons of Wembley Ltd v Williams [1965] 1 QB 560 (CA); see also Car and Universal Finance (n 12) 554 (Upjohn LJ). There is a limited exception that applies in certain cases of fraud, discussed at text to n 76.

[46] Alati v Kruger (n 14). There continues to be debate over whether it is the issue or service of the writ that is crucial, which hinges over the same communication question discussed below at 2C(ii).

[47] D O’Sullivan, S Elliott and R Zakrewski, The Law of Rescission (OUP 2008) para 11.07 argue that the principles that apply to acceptance of repudiatory breach should apply by analogy.

[48] Car and Universal Finance (n 12), citing Re Eastgate [1905] 1 KB 465 (KB).

[49] United Australia Ltd v Barclays Bank Ltd [1941] AC 1 (HL).

[50] KR Handley, ‘Exploring Election’ (2006) 122 LQR 82, 83.

[51] David Securities (n 20) 376 (Mason CJ, Deane, Toohey, Gaudron and McHugh JJ). The bar is not however absolute: see Roxborough v Rothmans of Pall Mall Australia Ltd [2001] HCA 68; (2001) 208 CLR 516 (HCA). If a civilian approach to unjust enrichment were adopted, whereby restitution is required in cases where the defendant has no juristic basis for retaining the benefit, election could be regarded as removing the justification for the transfer (such as a contract or gift), thereby enabling restitution of the benefit retained without basis.

[52] Eg Lumbers v W Cook Builders Pty Ltd [2008] HCA 27; [2008] 232 CLR 635 [76]–[78] (Gummow, Hayne, Cressman and Keifell JJ).

[53] Gifts: eg Allcard v Skinner (n 9); Quek v Beggs (n 9); Louth v Diprose (n 9). Vitiated transfers (eg transfers of title to cheques induced by fraud): Hunter BNZ Finance v CG Maloney Pty Ltd (1988) 18 NSWLR 420 (NSWSC) 433–44, 437 (Giles J); Orix Australia Corporation Ltd v M Wright Hotel Refrigeration Pty Ltd [2000] SASC 57; (2000) 155 FLR 267 (SASC) 272–73 (Bleby J); Perpetual Trustees Australia Ltd v Heperu Pty Ltd [2009] NSWCA 84; [2009] 76 NSWLR 195 (NSWCA) [70], [72] (Allsop P and Handley AJA (Campbell JA agreeing)).

[54] On its potential role within a system of unjust enrichment structured around a conception of ‘no juristic reason’ rather than unjust factors, see nn 20, 51.

[55] On the relationship between the restitutio in integrum requirement and change of position, see Bant, The Change of Position Defence (n 26) ch 4.

[56] Hunt v Silk [1804] EngR 356; (1804) 5 East 449, 102 ER 1142; Blackburn v Smith [1848] EngR 712; (1848) 2 Ex 783, 154 ER 707.

[57] Alati v Kruger (n 14) 222–23 (Dixon CJ, Webb, Kitto and Taylor JJ).

[58] Eg Alati v Kruger ibid.

[59] Eg Load v Green (n 12) 830 (Parke B); Hunter BNZ Finance (n 53) 432–33 (Giles J). Although the reported cases all concern fraud, the position should also be the same for transfers vitiated by duress: Halpern v Halpern (No 2) (n 16) [76] (Carnwath LJ, Waller and Sedley LJJ concurring).

[60] Eg El-Ajou (n 35); Daly (n 35); Latec Investments Limited v Hotel Terrigal Pty Limited [1965] HCA 17; (1965) 113 CLR 265 (HCA). In a non-contractual context, see eg Hunter BNZ Finance (n 53) 433–34, 437 (Giles J).

[61] Mr Swadling argues powerfully that proprietary rescission at common law is misconceived, in that it is based on an overly broad assumption incorrectly drawn from the particular rules concerning contracts for the sale of good. In sales cases, the contract is capable of operating to convey title and hence rescission of the contract may have proprietary effect. Where, however, title is conveyed by delivery the transfer occurs independently of any underlying contract. Unless the transfer itself is void (for example, for a fundamental mistake) it is fully valid and unimpeachable. Rescission in that context should not therefore have any proprietary effect: see Swadling, ‘Rescission, Property and the Common Law’ (n 6). However, this ‘abstractionist’ argument, in this author’s view, been convincingly answered in Häcker, ‘Rescission of Contract and Revesting of Title (n 6) and Häcker, ‘Proprietary Restitution after Impaired Consent Transfers’ (n 4) 336–37. For a thorough examination, see B Häcker, ‘Causality and Abstraction in the Common Law’ in Bant and Harding (n 10).

[62] Alati v Kruger (n 14) 224 (Dixon CJ, Webb, Kitto and Taylor JJ).

[63] The most recent English authorities are Drake Insurance plc v Provident Insurance plc [2003] EWHC 109 (Comm), [2003] 1 All ER (Comm) 759 [31]–[32] (Moore-Bick J), endorsed in Brotherton v Asguradora Colseguros SA [2003] EWCA Civ 705, [2003] 2 All ER (Comm) 298 [27] (Mance LJ), [45]–[48] (Buxton LJ).

[64] For a detailed analysis of four alternative models of rescission, and which ultimately adopts as correct this ‘classical’ model of rescission, see S Worthington, ‘The Proprietary Consequences of Rescission [2002] RLR 38.

[65] RP Meagher, JD Heydon and MJ Leeming, Meagher, Gummow and Lehane’s Equity Doctrines and Remedies (4th edn, LexisNexis Butterworths 2002) para 24-085 and O’Sullivan, Elliott and Zakrewski (n 47). A third view is that rescission (whether at common law or in equity) is, or should be, the act of the court: see J O'Sullivan, ‘Rescission as a Self-Help Remedy: A Critical Analysis’ (2000) 59 CLJ 509.

[66] An intermediate election model would accept that rescission requires an act of a court exercising a strongly guided discretion analogous to that found in the remedy of specific performance. Election here could operate to vest defeasible title to the transferred asset, which title would be subject to subsequent court scrutiny and order, or alternatively it could be a prerequisite for the court exercising its discretion to order proprietary relief: E Bant and M Bryan, ‘Constructive Trusts’ (Constructive Trusts Colloquium, Melbourne Law School, Australia, 6 December 2012, article forthcoming). In either case, the justification for using election as a prerequisite for proprietary relief would require principled justification of the sort required for the ‘rescission as act of plaintiff’ analysis.

[67] O’Sullivan, Elliott and Zakrewski (n 47) paras 11.63–11.91, 11.100.

[68] ibid, paras 11.101–11.105.

[69] For the leading analysis, see Häcker, ‘Proprietary Restitution after Impaired Consent Transfers’ (n 4). The ‘power model’ (here called an ‘election model’) is summarised at 329–31. cf Worthington (n 64) 48.

[70] Barclays Bank plc v Boulter [1999] UKHL 39; [1999] 4 All ER 513 (HL) 518 (Lord Hoffmann). This is why election cannot retroactively convert the defendant’s dealing with an asset prior to election into a breach of duty: Lonrho (n 40) 11, 12 (Millett J); Bristol and West Building Society (n 40) 22–23 (Millett LJ). The sole Australian authority recognising a doctrine of ‘conversion by relation back’ must now be regarded as wrongly decided: see Hunter BNZ Finance (n 53) disapproved on this point in Perpetual Trustees (n 53) [79]–[81] (Allsop P and Handley AJA, Campbell JA concurring).

[71] The nature of rescission of executory contracts and of the benefits returned as a result of rescission are discussed above at 1A.

[72] Eg R Chambers, ‘Two Kinds of Enrichment’ in Chambers, Mitchell and Penner (n 24) 267.

[73] [1981] Ch 105 (Ch).

[74] [2007] NSWSC 589.

[75] The duress may have been innocent, as where a defendant mistakenly believes herself entitled to detain the claimant’s goods to secure repayment of a debt.

[76] Car and Universal Finance (n 12).

[77] Cundy v Lindsay (1878) 3 App Cas 459 (HL) 463–64.

[78] Car and Universal Finance (n 12) 554.

[79] ibid, 551.

[80] ibid, 551 (Sellers LJ) 554–55 (Upjohn LJ) 559 (Davies LJ).

[81] The problems associated with extending a notice requirement to third parties, and whether change of position can extend to vested trust rights, are considered below at text to n 90. It should be noted that change of position would not, on present authority, extend to wrongdoers such as converters or trustees who have dissipated assets in breach of trust: Bant, The Change of Position Defence (n 26) 166–72. If it is thought necessary to protect this category of defendant, some discrete requirement, such as knowledge of breach, would need to be adopted.

[82] Häcker, 'Rescission and Third Party Rights' (n 6).

[83] Hartigan (n 33).

[84] It would be possible for a third party’s personal rights also to be affected, for example where a third party lends money to the defendant on the basis of the defendant’s apparent wealth. If rescission occurs, the defendant may lose assets previously apparently available to repay the loan. However, the third party still has her personal right of repayment, although it may be worth less as a matter of practice. And as she took a risk of non-repayment by not securing the loan, it is not obviously inequitable to prefer to interest of the rescinding claimant over the third party in permitting rescission on the claimant’s election.

[85] Häcker, ‘Proprietary Restitution after Impaired Consent Transfers’ (n 4) 330.

[86] Latec Investments (n 60).

[87] Car and Universal Finance (n 12).

[88] But see Newtons of Wembley (n 45), where notifying the police did not suffice to effect election.

[89] Beyond the original recipient, the problem only really affects third party donees: bona fide purchasers of a legal or equitable interest in the transferred property take free of any equity to rescind: Latec Investments (n 60).

[90] Bant, The Change of Position Defence (n 26) 204–9.

[91] Handley (n 50) 97.