Vale SA & Ors v Steinmetz & Ors

Rescission of a voidable transaction is an all-or-nothing remedy. Once rescission occurs, any rescission trust over traceable proceeds arises by operation of law and does not depend on a separate proprietary order.

An arbitral award between contracting parties does not determine proprietary consequences against non-parties or prevent claims against them. Contractual arrangements preserving claims between the original parties do not, without clear language, affirm the transaction or release claims against third parties.

Where the beneficiary of a rescission trust is a novel question, summary judgment should be refused if the claimant has a real prospect of success and the issue can properly be determined at trial on established facts.

The claimants alleged that a joint venture agreement with BSG Resources Ltd had been procured by fraud. An LCIA tribunal had rescinded the agreement and awarded damages, but had treated the initial consideration payment as damages rather than restitution.

The claimants then brought proprietary claims against Balda Foundation and Nysco Management Corporation, alleging that they had received traceable proceeds. Those defendants applied for summary judgment, relying on the LCIA Award, a subsequent Share Purchase Deed, and the argument that any rescission equity belonged only to Vale, although Vale International had made the payment.

The central issues were whether the LCIA Award or Share Purchase Deed defeated the rescission trust claim, and whether Vale or Vale International would be entitled to the trust.

1. The application was dismissed. Final relief was to be granted declaring that neither the Share Purchase Deed nor the LCIA Award afforded Balda or Nysco any defence to the rescission trust claim.
2. Rescission is an all-or-nothing remedy. The rescission trust arises automatically upon rescission by operation of law. It does not depend on the court or arbitral tribunal separately creating a trust or granting proprietary relief. The distinction between rescission and consequential proprietary relief was material.
3. The LCIA Award could not defeat the claim. The tribunal’s reasoning concerned the personal consequences of rescission as between Vale and BSGR. It did not determine proprietary claims against Balda or Nysco, which were not parties to the arbitration. Any issue estoppel or abuse-of-process argument between Vale and BSGR did not bind the defendants in this claim.
4. The Share Purchase Deed did not affirm, release or prevent the rescission equity. Clauses 6.2 and 6.3 preserved claims relating to the JVA and contained no language excluding claims against entities outside the LCIA Arbitration. The agreement to terminate the JVA prospectively therefore did not provide a clear defence to the claims against Balda or Nysco.
5. The court left open the novel question whether the beneficiary of a rescission trust is the contracting party whose equity enabled rescission or the entity whose property was transferred. Both Vale and Vale International had a real prospect of establishing the relevant entitlement at trial. The issue was better decided on the definitive facts after trial.

This was a first-instance summary judgment application. The judgment records an earlier LCIA arbitration and award between Vale and BSG Resources Ltd, but no appellate history of the present proceedings.