Remedies - Scottish Construction Contracts - page 255

10.2 Rescission
The concepts of repudiation and rescission are considered in Chapter 9. In certain
circumstances a material breach of contract by one party may be such as to entitle the
other party (the 'innocent party') to terminate the contract. If the breach constitutes
a repudiation of the contract, the innocent party has a choice. They can either accept
the repudiation and rescind the contract or, alternatively, they may elect to ignore the
repudiation and continue with the performance of the contract. The extent to which
there is a right to continue with performance may, however, be limited.
The remedy open to the innocent party is to rescind the contract. Where a contract
has been rescinded, both parties are freed from future performance of their primary
obligationsunderit.Partiescontinuetobeboundbytheprimaryobligationsthatwere
extant at the time of rescission. The contract does not come to an end. The innocent
party is entitled to sue the party in default for damages for breach of contract. Ancil-
laryclauseswhichthepartiesintendedwouldsurviverescission,suchasarbitration
clauses, may be enforced after rescission. Apart from such ancillary clauses, the con-
tract may also contain clauses which affect the amount of damages due for breach of
contract, such as a liquidated damages clause. The language of the contract may be
such as to demonstrate that the parties intended such clauses to be enforceable after
rescission, see Lloyds Bank plc v. Bamberger (1994).
It is well-established law that the innocent party's remedies for the other party's
breach of contract are limited to those provided for in the contract, and for those
breaches committed while the contract subsisted. However, where the contract
has been rescinded and the mutual obligations under it have ceased to exist, the
courthasthepowertoawardcompensationonthebasisof quantum meruit ,see
Morrison-Knudsen Co. Inc v. British Columbia Hydro and Power Authority (1991),
approvedbytheInnerHouseoftheCourtofSessionin ERDC Construction Ltd v.
HMLove&Co . (1995). The subject of payment quantum meruit is considered in
Section 8.4.
The ordinary position in contract is that the innocent party is entitled to ignore
the repudiation and continue with the performance of the contract. his is supported
bythedecisionoftheHouseofLordsin White & Carter (Councils) Ltd v. McGre-
gor (1962) and, in the case of building contracts, by the decision of the Inner House
of the Court of Session in ERDC Construction Ltd .hecourtshave,however,recog-
nized that there may be limitations upon the right of the innocent party to insist upon
performance. In White & Carter (Councils) Ltd ,LordReidmadeitclearthat:
[H]ad it been necessary for the defender to do or accept anything before the con-
tract could be completed by the pursuers, the pursuers could not and the court
would not have compelled the defender to act, the contract would not have been
completed, and the pursuers' only remedy would have been damages.
It must be noted that in White & Carter (Councils) Ltd the pursuers did not require
any co-operation, either active or passive, on the part of the defender. Building
contracts patently cannot be performed without co-operation between employer