Can I Rescind My Business Contract in England and Wales?

As a business entering into contracts with other businesses, you may benefit from being able to rescind your contract in certain cases. Rescission is when you set the contract aside, and both you and the other party are put into your pre-contract positions. In other words, rescission can return you to the position that you were in prior to the original contract’s commencement. 

Contract rescission can be a very useful remedy, especially if you are in a contract dispute and you would be better off without your obligations to the other party. However, you can only rescind your contract in certain situations. This article will explain the rules around rescission, and touch on some of the factors that give rise to the right to rescind.

What is Rescission?

Rescission refers to the right to put a contract aside as a result of a defect in the way that a contract was entered into. While this is the technical legal meaning of rescission, it is similar to the idea of terminating a contract. Termination and rescission are different legal remedies, but both can have the same consequences. 

Rescission in particular is an equitable remedy, meaning that it is at the discretion of the court as to whether you receive it or not. 

There is also a difference between equitable rescission and common law rescission. Common law rescission is available in more limited situations, such as duress and in fraudulent misrepresentation. 

The effect of rescission, as mentioned, is to return parties to their pre-contract positions. As a result, both parties must return any property that they received as a result of the contract. If you have more contractual obligations to the other party, those obligations will also lapse when the contract is rescinded. 

When Can I Rescind a Contract?

Rescission might be available to you if your agreement with the other party involved:

• a material misrepresentation about a fact which induced you into entering the contract;
• the other party exercised undue influence over you; or 
• the other party used duress to get you to enter into the contract.

Misrepresentation

Rescission is available if you entered into a contract while relying on a misrepresentation made by the other party. Misrepresentation is when the other person inaccurately presents a material fact which then causes you to enter into the contract. 

There are three types of misrepresentation: innocent misrepresentation, negligent misrepresentation, and fraudulent misrepresentation. Fraudulent misrepresentation can give rise to a common law right to rescind. 

Undue Influence

Undue influence is when one party secures the contract in an unacceptable way. The main types of undue influence are:

• when one party uses threats and coercion to get the other party to enter into the contract; or
• when one party takes advantage of their position to influence the other party, for example, they are trusted to look after another person and they exploit their position of power; 

Duress

Rescission is also available where one party uses duress. Duress is illegitimate pressure that deprives an individual of any meaningful choice and results in them entering into the contract. Examples of duress include a threat of:

• violence;
• damage, destruction, or seizure of property; or 
• a threat to an individual’s economic interests.

When Might Rescission Be Barred?

As mentioned, rescission is an equitable remedy. This means that it is at the court’s discretion, and can be barred in certain instances. If rescission is barred, a court will give you damages to reflect your loss. While this can be helpful, it will not help you in getting back the property that you exchanged as part of the agreement.

Some examples of bars to rescission include:

• where the parties cannot be put back into their original position;
• if the party with the right to rescind has decided to continue the contract instead of exercising their right;
• if the party with the right to rescind has significantly delayed exercising their right (or when the rescission period has passed completely); or
• a third party has acquired rights as a result of the contract, and rescinding the contract would prejudice the third party unfairly.

When Can I Terminate a Contract?

Termination, as mentioned, is different from rescission. Termination is where the contract is put to an end completely. 

Sometimes, a contract will have a termination clause. This outlines situations in which you may be able to terminate your contract. As a result, the first step in checking if you can terminate your contract is to reread its terms. In the alternative, you can always ask the other person if they are willing to terminate. 

If they refuse, then you can check if there is a breach of any contract term. If they have breached a term of the contract, then you can take them to court to terminate the agreement for breach. 

Key Takeaways

As a business entering into contracts, it is worth knowing when you have the right to rescind a contract. The right to rescission arises in a number of situations, and it has the effect of putting the parties back to their pre-contract positions. The right to rescind can arise if the contract involves a misrepresentation, undue influence, or duress. As rescission is an equitable remedy, you may be given damages in place of rescission where a court does not think that it is the appropriate remedy. 

It is also worth checking if you are able to terminate a contract. You can terminate a contract if you can trigger a termination clause within your contract terms, or if the other party is in breach of an important contract term. 

If you need help determining if you have the right to rescind a contract, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.

Frequently Asked Questions