L4M3 practice question 16 of 25

Cleveland Insurance (Cleveland) offers a range of insurance services. The main software used in the call centre is a customer relationship management…

Cleveland Insurance (Cleveland) offers a range of insurance services. The main software used in the call centre is a customer relationship management (CRM) system. Cleveland perceived an urgent need to replace the existing CRM system to deal with the increasing number of customers and services. Urgent Digital Ltd (Digital) is one of the bidders of Cleveland’s ITT for designing, building and managing the new CRM system. Its bid team is led by Hank Irvine, its technical director. Hank realises that winning the Cleveland contract (valued at approximately £50M) will enhance his career. During discussions with Cleveland, Hank offers certain assurances regarding timescales for the project. He has not carried out any investigations into the viability of the timescales. Hank has little idea whether the timescales can be met. Cleveland decides that Digital’s bid meets with its requirements, especially given the assurances in timescale offered by Hank, and decides to proceed with it, subject to a formal contract. Eventually, a formal contract is signed by both parties. The initial assurances given by Hank about the timing of the project are never going to be achieved and are at best grossly exaggerated. Cleveland brought the case to the court and sought rescission of contract with Digital. Is Cleveland’s claim appropriate in this case?

Answer options

A: Yes, because Cleveland needs to seek rescission first before claiming for damages

B: Yes, because both parties agreed with rescission of their contract

C: No, because the work had been carried out which could not be returned Correct answer

D: No, because the contract does not include any provision on rescission

Correct Answer:

C. No, because the work had been carried out which could not be returned

Explanation

The claim for rescission is inappropriate because it is likely barred. Rescission is an equitable remedy that aims to restore the parties to their pre-contractual positions (restitutio in integrum). In this scenario, Digital has commenced the work of "designing, building and managing the new CRM system." This is a significant service, and once performance has begun, it is impossible to 'return' the work done and fully restore both parties to their original state. The court would therefore find that rescission is impossible. Cleveland's more appropriate remedy would be to affirm the contract and sue for damages resulting from the misrepresentation regarding the project timescales.

Why Incorrect

A. A claimant can seek damages for misrepresentation (especially fraudulent or negligent) without, or in addition to, seeking rescission.
B. The scenario states Cleveland brought the case to court, implying a dispute, not a mutual agreement to rescind the contract.
D. Rescission for misrepresentation is a remedy available in equity and common law; it does not need to be an explicit contractual provision.

References

1. Poole

J. (2021). Textbook on Contract Law. 15th ed. Oxford: Oxford University Press. In the chapter on Misrepresentation

the concept of 'Bars to rescission' is discussed. Specifically

the bar of 'Impossibility of restitution' is explained

stating that if the parties cannot be returned to their pre-contractual position

the right to rescind is lost (see Chapter 9

Section 9.8.3). The performance of a service

such as building a software system

is a prime example where restitution is impossible.

2. McKendrick

E. (2020). Contract Law: Text

Cases

and Materials. 9th ed. Oxford: Oxford University Press. Chapter 17

'Misrepresentation'

details the remedies available. It clarifies that rescission is unavailable where restitutio in integrum is not possible. The text notes

"where the subject-matter of the contract has been worked or consumed

it will be impossible to restore the parties to their original position" (p. 648).

3. CIPS (Chartered Institute of Procurement & Supply). (2018). Commercial Contracting L4M3 Study Guide. Stamford

UK: Profex Publishing. The guide explains remedies for breach of contract and misrepresentation. It outlines that rescission aims to set the contract aside

but this is not always possible

particularly where a service has been partly or wholly performed

making it impossible to restore the status quo. In such cases

damages become the primary remedy. (Relevant principles are covered in Learning Outcome 3).

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