Gain based relief and rescission

The idea

Gain based relief and rescission answer a different question from damages. Damages measure what the plaintiff lost. The claims here strip what the defendant gained, reverse a transfer or unwind the transaction. Choosing the route is where most of the marks sit. This is because each route has its own trigger, its own measure and its own defences. An account of profits strips a fiduciary's gain but not a contract breaker's. Restitution returns money or the value of services. Rescission needs a vitiating factor, an election and substantial restoration. The strong answer names the route first and closes with a money result.

Some rules carry a small icon marking the structure the rule takes. The icon is a reading aid and nothing more. The facts of the cases and the words of the rules do the work.

Attack plan

First ask what kind of claim this is. Some claims strip a profit the defendant earned from a wrong. Others give back a transfer or unwind the transaction. The kind of claim fixes the measure and the defences.
Run the account of profits where a fiduciary profited. A fiduciary who profits from position or conflict accounts for the profit, with allowances and sometimes a time cap. A knowing participant in a dishonest breach disgorges any benefit causally connected to it. An account is not available for breach of contract in Australia. Even in England it needs the exceptional case of a legitimate interest in preventing the defendant's profit making activity.
Turn to restitution of money and services. Money paid under a mistake is prima facie recoverable. Services under an unenforceable or terminated contract may ground quantum meruit, but after a repudiation the award for incomplete work is in practice capped at the contract rate. Rights accrued unconditionally before termination survive as debts. An advance earmarked for a purpose that will never occur is recoverable on total failure of its basis. A clause forfeiting payments on cancellation answers to the penalty doctrine.
Test the change of position defence. The defence covers irreversible detriment incurred in good faith on the faith of the receipt. Partial detriment reduces the claim rather than defeats it.
Where the plaintiff wants the transaction undone, run rescission in its fixed order. Find the vitiating factor. Ask whether the plaintiff elected to avoid in time and communicated the election. Ask whether substantial restoration of the parties remains possible. Then run the bars. Affirmation bars the remedy. So does fundamental consumption or transformation of the subject matter. Rescission also excludes damages for performance of the very contract avoided.
Consider partial and pecuniary rescission. Equity may rescind partially or on terms to prevent windfalls. Where a gifted asset has been sold on, equity awards its monetary equivalent instead.
Conclude with the money result. State the award, the route that produced it, the minimum the plaintiff recovers even on the losing view, and why the alternative route was rejected.

Cases at a glance

Case	In a line
Warman	An agency was diverted in breach of fiduciary duty. The account ran for two years of profits with allowances for skill and effort
Lifeplan	A knowing participant helped build a business on a dishonest fiduciary breach. Gageler J extended the account to any benefit causally connected, including the business's capital value
Hospitality	Tickets were scalped in breach of contract. The account of profits was refused, so Australian law gives no account for breach of contract
Blake	A former spy published memoirs in breach of contract. England allows an account only in the exceptional case of a legitimate interest in preventing the profit making activity
David Securities	Money was paid under a mistake. It was prima facie recoverable as money had and received, subject to good faith change of position
Pavey	Services were rendered under an unenforceable contract. A quantum meruit lay for the services
Mann	A building contract was terminated for repudiation before a stage was complete. Accrued stage payments survived as debts and restitution for the incomplete stage was in practice capped at the contract rate
Andrews	The reach of the penalty doctrine was the question. The doctrine extends beyond sums payable on breach
Paciocco	The test for a penalty was the question. A stipulation fails where it is out of all proportion to any legitimate interest in performance
Alati	A fruit business sale was procured by fraud. The sale was unwound with adjustments, since substantial restitutio in integrum suffices
Clarke v Dickson	The subject matter had been fundamentally consumed or transformed. Rescission was barred
Caldwell	The fraudster absconded before the election could be communicated. Communication is required except against an absconding fraudster
Daly	The plaintiff sought rescission and damages on the same contract. Inconsistent remedies cannot be pursued together, so rescission excludes damages for performance of the very contract avoided
Vadasz	A guarantee was rescinded only in part. Equity enforced it for future supplies only, to prevent a windfall
Maguire	A fiduciary held a mortgage over the client's property. The mortgage was set aside only on terms of repaying the principal
Hartigan	A family farm was gifted under presumed undue influence and the recipient sold it to pay debts. Equity awarded its monetary equivalent as pecuniary rescission

The rules

R61 · What must a fiduciary who profited from position or conflict give up? A fiduciary who profits from position or conflict must account for the profit with allowances for skill and effort and where a business is acquired the account may be confined to a period reflecting the breach's contribution. Warman. Trap. Restitution gives back a transfer the plaintiff made. Disgorgement gives up a profit the defendant earned. Warman disgorges and David Securities restores, and the distinction is a recurring essay subject.

R62 · What must a knowing participant in a dishonest fiduciary breach disgorge? A knowing participant in a dishonest breach of fiduciary duty must disgorge any benefit obtained as a result including the capital value of a business built on the breach. Lifeplan (Gageler J). Run this rule against the participant where the fiduciary's own account falls short.

R63 · Is an account of profits available for breach of contract? An account of profits is not available for breach of contract in Australia and even in England requires the exceptional case of a legitimate interest in preventing the defendant's profit making activity. Hospitality; Blake. Trap. Run Hospitality as the wall and Blake as the doorway. The doorway needs a legitimate interest, frustrated specific performance and a unique subject matter. If it stays shut, fall back to the fee or value at breach. Past papers reward exactly this sequence.

R64 · When is money paid under a mistake recoverable? Money paid under a mistake is prima facie recoverable as money had and received subject to defences including good faith change of position. David Securities. The claim gives back what was transferred rather than stripping any profit.

R65 · When can services be recovered on a quantum meruit and how is the award limited? Services rendered under a contract unenforceable or terminated may ground quantum meruit but where termination follows repudiation restitution is excluded for stages where the right to payment accrued and any award for incomplete work is governed and likely capped by the contract price. Pavey; Mann. Trap. The cap stops plaintiffs escaping bad bargains, yet it lets the repudiator's own price protect the repudiator. The ceiling debate is a recurring essay subject.

R66 · What survives termination for repudiation and what does the innocent builder recover? Upon acceptance of a repudiation rights that had accrued unconditionally before termination survive and are enforced as debts while no stage payment accrues until its stage is complete, and restitution for work within an incomplete stage is in practice capped at the contract rate. Mann. Identify accrued debts first. Frame the incomplete stage in damages with restitution in the alternative, since the contract price less costs saved usually equals the capped restitutionary sum.

R67 · When is an advance payment recoverable for total failure of basis? An advance earmarked for a specific application is recoverable on a total failure of its basis where the application will never occur, whoever terminated, because the earmark and not the work fixes the basis of the payment. Mann; David Securities. Payments the contract never allocated to work fall outside the contract rate cap entirely. Hunt for the earmark in the facts.

R68 · Can a clause forfeiting payments on cancellation be challenged? A clause forfeiting payments made or due upon cancellation answers to the penalty doctrine and fails where the forfeiture is out of all proportion to any legitimate interest in performance. Andrews; Paciocco. Ask what interest in performance the forfeiture protects.

R69 · How far does change of position defeat a restitutionary claim? The change of position defence operates to the extent of the irreversible detriment incurred in good faith on the faith of the receipt, so it reduces rather than defeats the claim where the detriment is partial. Casebook principle, no prescribed case. A defendant who spent only half the receipt keeps only half.

R70 · What is required for rescission and when is it barred by impossibility of restoration? Rescission requires election to avoid while substantial restitutio in integrum remains possible and equity moulds accounts and allowances to achieve practical justice, and is barred where the subject matter has been fundamentally consumed or transformed. Alati; Clarke v Dickson. Trap. Vitiating factor, election, restitutio, bars, adjustments, in that order. Affirmation evidence such as continued trading, refused offers or reinvestment kills the claim before the analysis begins.

R71 · When must the election to rescind be made and communicated? Election must occur within a reasonable time of discovering the truth and affirmation bars rescission while communication is required except against an absconding fraudster. Caldwell. Look for affirmation conduct in the facts before running any election argument.

R72 · Can a plaintiff rescind and also claim damages on the same contract? A claimant cannot pursue inconsistent remedies and rescission excludes damages for performance of the very contract avoided. Daly. Damages for loss of the bargain affirm the contract. Rescission denies it, so the two cannot run together.

R73 · Can equity rescind partially or on terms? Equity may rescind partially or on terms to prevent windfalls and a fiduciary's mortgage is set aside only on terms of repaying the principal. Vadasz; Maguire. Trap. Where a solicitor lends to a client at an undisclosed margin, Maguire requires rescission of the security on terms of repaying the principal. An account of the excess interest runs alongside, with unconscionability and ACL claims in the alternative. Losses from intervening events are tested against Canson, which excuses the fiduciary only for acts truly independent of the breach.

R74 · What remedy exists where a gift procured by undue influence has been sold on? A gift procured by undue influence or unconscionable dealing may be rescinded and where the recipient has sold the property equity awards its monetary equivalent as pecuniary rescission. Hartigan. The money award stands in for the property that can no longer be returned.

The flowchart

The gain based relief and rescission flowchart runs the attack plan as a single page of decisions, from the choice of route to the money result. It ships with the Remedies flowcharts page at /remedies/flowcharts. Until that page is live the chart sits in Remedies Flowcharts (the companion document to the schematic).

A worked example, dissected

Juniper & Co built its gin brand on scarcity and its distribution agreement confined Vessel to "licensed venues only, never retail". Facing a cash squeeze, Vessel moved 4,000 bottles through a discount retail chain and earned a $110,000 margin, roughly triple its venue margin. Juniper's provable loss from dilution of its venue pricing is $18,000 at best. The director wants every cent of the retail windfall.

The move	What the strong answer does
Open on the kind of claim	Names the contest as disgorgement against compensation. Juniper transferred nothing to Vessel, so the demand is not restitution
State the Australian position	Hospitality refuses an account of profits for breach of contract. The tripled margin proves Vessel breached profitably rather than that Juniper lost more
Put Blake at its highest	The scarcity recitals give Juniper an arguable legitimate interest in preventing retail sales as such
Reject Blake on two grounds	Australian law has not adopted it, and a commercial interest in scarcity falls short of the exceptional interest Blake requires. Names the efficient breach tension rather than fighting it
Conclude with the figure	$18,000 in damages, the minimum Juniper recovers even on the losing view, with the matching settlement offer flagged for its costs consequences

The full problem, with its Pass answer, H1 answer and examiner's comments, is Problem 1 of the gain based relief and rescission drill bank on the practice page.

Practise this module

Ten drills in the gain based relief and rescission bank cover every rule above, and the exam tier runs the module inside integrated scenarios. Start with the quick drills on telling restitution from disgorgement, then attempt the bank blind. ��

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