THE LAW OF COMMERCIAL CONTRACT Misrepresentation (Sweeney & O’Reilly 2 nd Ed Chapter 3 pp 56 – 58 & Chapter 9 p 257)

THE LAW OF COMMERCIAL CONTRACT History  1880’s – Caveat Emptor – Let the buyer beware  Court of Equity  Relief for fraudulent misrepresentation  Rescission was only remedy  Common Law Courts  Relief for innocent misrepresentation only if it became a term of the contract  Tort of negligent misrepresentation  Only remedy was damages

THE LAW OF COMMERCIAL CONTRACT History  1970’s – Statutory Reform  S52 Trade Practices Act & s11 Fair Trading Act  Removed distinction between fraudulent, negligent and innocent misrepresentation  Built upon previous law regarding misrepresentation

THE LAW OF COMMERCIAL CONTRACT

Categories of Misrepresentation  Fraudulent misrepresentation  Representor knew it to be false or was reckless as to whether it was true or false

THE LAW OF COMMERCIAL CONTRACT Fraudulent misrepresentation (deceit)  Liability for fraud cannot be excluded  Remedy for fraudulent misrepresentation is damages.

THE LAW OF COMMERCIAL CONTRACT Categories of Misrepresentation  Negligent Misrepresentation  Representor owed a duty of care to representee  Representor failed to exercise the required standard of care  Loss, which was a reasonably foreseeable consequence of the misrepresentation, was caused by misrepresentation

THE LAW OF COMMERCIAL CONTRACT Negligent misrepresentation  Liability for negligence can be excluded by an exemption clause  Remedy for negligence is damages.

THE LAW OF COMMERCIAL CONTRACT Categories of Misrepresentation  Innocent misrepresentation  Representor did not know it was false and owed no duty of care to the representee  No remedy at common law or equity

THE LAW OF COMMERCIAL CONTRACT Categories of Misrepresentation  Misleading & Deceptive Conduct  Section 52 Trade Practices Act  No need for fraud or negligence

THE LAW OF COMMERCIAL CONTRACT Misleading or deceptive conduct (statutory misrepresentation)  Prominent and clear disclaimers may affect liability.  Remedies:  Damages (if the misleading or deceptive conduct representation caused the loss);  Contract created in reliance on the misleading conduct may be varied or declared void;  Injunctions;  Other remedies (eg corrective advertising);  Criminal sanctions are available for misrepresentations under s 75AZC TPA.

THE LAW OF COMMERCIAL CONTRACT Elements of Misrepresentation  The statement was false  The statement was one of fact  Statement was addressed to the representee before or at the time that the contract was entered into  The statement induced the representee to enter into the contract

THE LAW OF COMMERCIAL CONTRACT Statement was false  Silence will not normally suffice  Half truths  Re Hoffman; ex p Worrell v Scilling (noted – S&OR p39\59)  Krakowski v Eurolynx (note - S&OR p40\60)  Altered circumstances  Lockhart v Osman (S&OR p40\60)  Misrepresentation can be made by conduct

THE LAW OF COMMERCIAL CONTRACT Statement was one of fact  Not a mere puff  Usually, not an opinion  An opinion can be a fact where the representor has special knowledge  Smith v Land and House Property Corp (S&OR p39\59)  The existence of an opinion can be a fact  Sola Optical v Mills (1987) 168 CLR 628

THE LAW OF COMMERCIAL CONTRACT Addressed to the Representee  A representee cannot sue on a representation that was not directed to him and was not intended to induce him into making the contract  Peek v Gurney (S&OR p41\61)  But is sufficient if communicated to a third party with the intention that it would be communicated to the representee

THE LAW OF COMMERCIAL CONTRACT Statement Induced Representee to Act  Not necessary that it was the only reason for entering the contract  But it must be one of the reasons  Representee cannot be aware of truth before entering into the contract  Holmes v Jones (S&OR p40\60)  Representee is not required to investigate  Redgrave v Hurd (S&OR p41\61)

THE LAW OF COMMERCIAL CONTRACT Remedies for Misrepresentation  Recission  Contract is void ab initio  Not the same as termination  Damages

THE LAW OF COMMERCIAL CONTRACT Duress, Undue Influence, Unconscionable Conduct and Mistake (Sweeney & O’Reilly 1 st Ed Chapter 9 pp 219 – 224, 2 nd Ed Chapter 9 pp 261 – 266)

THE LAW OF COMMERCIAL CONTRACT Duress  A contract entered into due to coercion or force can be rescinded  Coercion can be:  To the person;  To goods; or  Economic duress

THE LAW OF COMMERCIAL CONTRACT Duress (cont.)  Duress to the Person  Threats of physical punishment or imprisonment to the person, his family or friends  Duress to Goods  Threats that are made against a person’s property

THE LAW OF COMMERCIAL CONTRACT Economic duress  An economic threat that is not “legitimate”  No rule that that commercial parties have to be fair to one another  A threat to break a contract can be economic duress  North Ocean Shipping v Hyundai (p220\262)  A lawful threat may be illegitimate  Cockerill v Westpac (S&OR p220\263)

THE LAW OF COMMERCIAL CONTRACT Undue influence  The unconscionable use by one person of power possessed by him over another in order to induce the weaker party to enter into a contract  Mitchell v Pacific Dawn (S&OR p263)  Presumed in special relationships and where one party is in a position of dominance or confidence  O’Sullivan v Management Agency (S&OR p221\264)  Lloyd’s Bank v Bundy (S&OR p222\265)

THE LAW OF COMMERCIAL CONTRACT Undue influence (cont.)  There must be more than mere reliance or influence  Innocent party must show that the contract would not have been made without the undue influence  Court will look at:  The equality of the bargain  The weaker party’s ability to make free and independent choices  Whether the weaker party received independent advice

THE LAW OF COMMERCIAL CONTRACT Unconscionable Conduct  One party takes advantage of the other parties special disability to the extent that the contract is unfair or unconscionable  Blomley v Ryan (S&OR p219\261)  Commercial Bank v Amadio (S&OR p61\86)  Elements  Special disability  Absence of any equality between the parties  Disability evident to other party

THE LAW OF COMMERCIAL CONTRACT Unconscionable Conduct - Remedies  Originally, only rescission was available  s51AA Trade Practices Act and s7 Fair Trading Act permits damages  A corporation must not, in trade or commerce, engage in conduct that is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories.  S82 Trade Practices Act & s159 Fair Trading Act  A person who suffers loss or damage by conduct of another person … may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention.

THE LAW OF COMMERCIAL CONTRACT Mistake  A party cannot get out of a contract because they made a mistake  Exceptions:  Mistake due to other party’s misrepresentation, unconscionable conduct etc.  Common mistake  Unilateral mistake

THE LAW OF COMMERCIAL CONTRACT Mistake  Common mistake  Both parties make the same mistake  Unilateral Mistake  One party is mistaken as to a fact; and  Other party is aware of the mistake  Taylor v Johnson (S&O p223)

THE LAW OF COMMERCIAL CONTRACT Recission (Sweeney & O’Reilly 1 st Ed Chapter 9 pp 216 – 219, 2 nd Ed pp )

THE LAW OF COMMERCIAL CONTRACT Rescission  The parties must be capable of being restored to substantially the position they were in before the contract was entered into  Known as “Restitution”  Court can make consequential orders  Precise restitution is not necessary  Not possible where services already supplied pursuant to a contract of service

THE LAW OF COMMERCIAL CONTRACT Rescission is available for:  Misrepresentation  Unconscionable conduct  Duress  Undue influence  Mistake

THE LAW OF COMMERCIAL CONTRACT Rescission (cont.)  Innocent party must give notice of rescission to other party  Notice can be implied from conduct  Academy of Health & Fitness v Power (S&OR p218\260)

THE LAW OF COMMERCIAL CONTRACT Rescission (cont.)  Rescission is not permitted if the contract has been affirmed  After discovering misrepresentation, innocent party does any act which indicates that he is treating contract as still running  A delay in rescinding can amount to an affirmation

THE LAW OF COMMERCIAL CONTRACT Rescission (cont.)  Not permitted if the legal rights of an innocent third party will be adversely affected  For example, where goods have been on sold to a bona fide purchaser for value  But, rescission will be effective where it occurs before the third party gains an interest  Car & Universal Finance Co v Caldwell (S&OR p218\260)