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Hello all

Thanks to Lionel for bringing the Alb L Rev stuff to our attention. Can I bring the list back to this time last year, when I was sending long emails about the nature of rescission arising out of the decision of the House of Lords in Barclays Bank v O'Brien? I received many replies, both on and off list. Thank you all for that. After much thought, I've accepted many of the criticisms, but not all. For those who are interested, can I run a modified version of the argument past you ? It incorporates the view upon which most of the criticisms of my earlier position were predicated that obligations arise from the categories of causative events of consent, wrongs, unjust enrichment, and others; but, as I now conceive of rescission, this point does not dispute the validity of my argument.

Take the following example. P asserts that D owes an obligation in contract (consent); D defends on the grounds that the contract is void. The court holds that the contract is indeed void (for example, for ultra vires; as in Hazell). All that has happened so far is that the court has considered whether an obligation arises in the category of causative event of consent, and has held that it does not. P now asserts that in the absence of the contract, D has been unjustly enriched and must make restitution. The court holds that consequent upon the voidness of the contract, D must indeed make restitution (Westdeutsche, Guinness Mahon, Kleinwort Benson). All that has happened now is that the court has considered whether an obligation arises in the category of causative event of unjust enrichment, and has held that it does. In other words, the process of the finding of ultra vires is the process by which it is determined that no obligation based upon consent arises; the subsequent application of the four enquiries is the process by which it is determined that an obligation based upon unjust enrichment arises.

I am absolutely convinced that this analysis holds for void contracts. Now, let us change the example slightly, so that it covers not a void contract but a voidable one.

Again, P asserts that D owes an obligation in contract (consent); D defends on the grounds that the contract is voidable. The court holds that the contract is indeed voidable, and sets it aside. All that has happened so far is that the court has considered whether an obligation arises in the category of causative event of consent, and has held that it does not. P now asserts that in the absence of the contract, D has been unjustly enriched and must make restitution. The court holds that consequent upon the avoidance of the contract, D must indeed make restitution. All that has happened now is that the court has considered whether an obligation arises in the category of causative event of unjust enrichment, and has held that it does. In other words, the process of the avoidance of the contract is the process by which it is determined that no obligation based upon consent arises; the subsequent application of the four enquiries is the process by which it is determined that an obligation based upon unjust enrichment arises.

In other words, my view is that what we currently call rescission and think of as a monolithic process is in fact a two stage process (just like with tracing where orthodoxy has it as a monolithic process, but restitution scholarship has insisted that it is a two-stage process, ie, the combination of identification and claiming). Of course, the process of rescission needs a little tweaking to reach this position, but much of that tweaking is already happening anyway without it being directed to this end (see esp Nahan "Rescission: A case for rejecting the classical model ?" (1997) 27 UWALR 66).

On this view, when a contract goes off (whether that is because it is void, or voidable and avoided), there are always two separate enquiries: the first is whether there is a valid contract (ie whether there is a valid obligation arising from consent); if not, the second is whether restitution follows (ie whether there is a valid obligation arising from unjust enrichment). And, on this view, the O'Brien rule - whether the bank has "notice" of the husband's "equitable wrong" against the wife - is simply the first enquiry (the contract enquiry, the consent enquiry).

In response to an earlier version of the above argument, Lionel Smith and Prof Birks objected that the "right to rescind" is a right which arises by operation of law to reverse an unjust enrichment. In my view, the "right to rescind" (like the "right to trace") is in fact a process which contains two distinct elements, the first is the defence to the cause of action in contract (consent); the second is the right to restitution; only the second of these two elements is an obligation in the Birksian taxonomy of causative events.

Of course, this could all be entirely mad, but I would welcome arguments as to whether or not it is.

Best regards from Dublin, and now back to piles of lovely exam scripts which I have been studiously ignoring for the last half hour in typing the above.

Eoin.

EOIN O'DELL
Barrister, Lecturer in Law, Trinity College, Dublin 2, Ireland
(353/0 1) 608 1178 (w) 677 0449 (fx); (353/0 86) 286 0739 (m)
(All opinions are personal. No legal responsibility whatsoever is accepted.)