Consult with a lawyer for more understanding regarding the rescission of contract Malaysia:
What Is Rescission Of Contract?
Rescission is a remedy that puts parties in the original position they were in before the contract was entered between them. In this regard, each party is relieved of his obligations under the contract and each party can recover any benefit which the party may have conferred upon either party/ make compensation for such benefit1.
How Many Types Of Rescission Exist In Malaysia?
There are two types of rescission of contract Malaysia, which is succinctly explained in RHB Bank Bhd v Travelsight (M) Sdn Bhd & Ors and Another Appeal2:
| Rescission in Common Law | Rescission in Equity |
|---|---|
| Is a “self-help” remedy i.e. a person entitled to rescind – for example, on the ground of fraud or duress – communicates his or her election to the other party and the agreement is thereby avoided. | Is not a “self-help” remedy i.e. it requires a court order, and the court has discretion whether to grant it or vice versa. |
| To rescind at common law, it is not enough that a party has a recognized common-law ground to do so – such as duress. In addition, that party needs to be in a position to restore the parties to their original state before the contract i.e. restitution in integrum (restoration of an injured party to the situation which would have prevailed had no injury been sustained). | Where precise restitution in integrum is not possible, a party may still be able to rescind on common law grounds – with the aid of equity. Whilst equity does not insist on precise restitution in integrum, it is said that equity requires substantial restitution in integrum, or that, by the exercise of its powers, it can do what is practically just between the parties, and by so doing restore them substantially to the status quo. |
| Money must be repaid and property returned. If that cannot be done precisely, the contract cannot be rescinded at common law. | Equity has a broader array of remedies available to it than the common law, which it can use to achieve substantive restitution. For example, relief can be granted on conditions, or accounts and inquiries can be ordered so as to work out what adjustments need to be made between the parties. The form in which rescission is effected is that orders for accounts, payment of money, specific restitution and so on are made, together with a declaration that the plaintiff has validly rescinded the contract. |
When Can A Party Ask For Rescission?
When party A induce party B to enter into a contractual relationship with A on the premise of undue influence, fraud, coercion or misrepresentation (regardless of whether it is fraudulent/ negligent/ innocent misrepresentation), resulting in B suffering loss3. In this regard:
- B may exercise his right by giving notice to the other party of his intention to rescind the contract (rescission in the common law), or he may apply to the court4 to have the contract rescinded by the court (rescission in equity);
- A must restore the party’s benefit to the best of his capabilities to B5, the court might also require A to make compensation to B; and
- Both parties are relieved of their obligations under the contract and each party can recover any benefit which the party may have conferred upon either party/ make compensation for such benefit6.
When Is An Innocent Party Barred From Asking For Rescission?
Below are certain examples where an innocent is barred from asking for rescission:
- As noted above, when restitution in integrum is available;
- When the innocent party elects to affirm the contract;
- When the contract is still executory7; or
- If a 3rd party has acquired some interest in the subject matter of the contract in good faith and for value.
Consult with a lawyer for more understanding regarding the rescission of contract Malaysia:
1. Section 66, Contracts Act 1950.
2. [2016] 1 MLJ 175.
3. Section 19(1) and 20, Contracts Act 1950.
4. Section 34(1)(a), Specific Relief Act 1950.
5. Section 65, Contracts Act 1950.
6. Section 66, Contracts Act 1950.
7. Admiral Cove Development Sdn Bhd v Balakrishnan A/L Devaraj & Anor [2011] 5 MLJ 309.