1. Copyright Guy Harley 2008 1 Revision

2. Copyright Guy Harley 2008 2 Void, Voidable & Unenforcable  Void  Where one or more of essential elements of contract are missing  There is no contract  Voidable  Parties have option to avoid contract  Equitable remedy of rescission  Valid & enforceable until one party rescinds

3. Copyright Guy Harley 2008 3 Rescission  Effect  Contract is terminated ab initio (i.e. it is as though there never was a contract)  cancels the contract from the point of termination  Procedure  Innocent party rescinds by giving notice to the other party  Notice can be implied from conduct

4. Copyright Guy Harley 2008 4 Bars to Rescission  Third Party rights adversely affected  Substantial restitution not possible  Innocent party affirms contract  Party wishing to rescind does not have “clean hands”  Lapse of time

5. Copyright Guy Harley 2008 5 Duress  A contract entered into due to coercion or force can be rescinded  Coercion can be:  To the person;  To goods; or  Economic duress

6. Copyright Guy Harley 2008 6 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  A lawful threat may be illegitimate

7. Copyright Guy Harley 2008 7 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  Presumed in pre-existing special relationships where one party is in a position of trust and confidence  Called a “fiduciary relationship”

8. Copyright Guy Harley 2008 8 Fiduciary Relationships  Parent & Child  Guardian & ward  Principal & Agent  Trustee & Beneficiary  Doctor & Patient  Lawyer & Client  Religious advisor & Follower  More

9. Copyright Guy Harley 2008 9 Where No Special Relationship  Weaker party must show that there is a relationship of dependence, trust & confidence  Stronger Party exerted undue influence to the extent that the weaker party could not exercise an independent judgment  There must be more than mere reliance or influence  Weaker party must show that the contract would not have been made without the undue influence

10. Copyright Guy Harley 2008 10 Where no Special Relationship  Court will look at:  The equality of the bargain  The weaker party’s ability to make free and independent choices  Domination by one party  Dependency on another  Need for guidance, advice and support  Low intelligence, weak mindedness, illiteracy  Age & Health  Lack of independent financial or legal advice

11. Copyright Guy Harley 2008 11 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

12. Copyright Guy Harley 2008 12 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  Mutual mistake  Unilateral mistake  Mistake as to nature of document

13. Copyright Guy Harley 2008 13 Common Mistake – Equity  A common misunderstanding  An important but not fundamental mistake  Mistake through no fault of either party  Unconscionable for one party to benefit from mistake  No bar to rescission

14. Copyright Guy Harley 2008 14 Mutual Mistake  Parties are talking about different things  Both are mistaken  Difficult to work out what parties intended  No “meeting of the minds”

15. Copyright Guy Harley 2008 15 Unilateral Mistake - Equity  One party is mistaken as to a fundamental term; and  Other party is aware, or should be aware, of the mistake  Mistaken party will suffer detriment if not allowed to rescind

16. Copyright Guy Harley 2008 16 Unilateral Mistake – Common Law  Mistake as to Identity  If Third Party rights involved, identity must be important  Mistake as to nature of document  Non est factum

17. Copyright Guy Harley 2008 17 Mistake as to nature of document  Radical difference between what was signed and what party believed they were signing  Mistaken party relied on others for advice because unable to  read document  Understand document  Mistaken party not careless

18. Copyright Guy Harley 2008 18 Misrepresentation

19. Copyright Guy Harley 2008 19 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

20. Copyright Guy Harley 2008 20 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

21. Copyright Guy Harley 2008 21

22. Copyright Guy Harley 2008 22 Elements of Misrepresentation  Statement of material fact  Statement was false  Statement was addressed to the representee before or at the time that the contract was entered into  Statement induced the representee to enter into the contract  Statement caused loss

23. Copyright Guy Harley 2008 23 Statement was one of fact  Statement of past or present fact  Not  a mere puff  A misstatement of the law  Statement of future intention  Unless no real intention at time of representation  Edgington v Fitzmaurice  Usually, not an opinion

24. Copyright Guy Harley 2008 24 Statement was one of fact  An opinion can be a fact where:  No genuine or actual belief in its truth  No reasonable person could hold opinion  The representor has special knowledge  Smith v Land and House Property Corp (Graw 12.4.3)  The existence of an opinion can be a fact  Sola Optical v Mills (1987) 168 CLR 628

25. Copyright Guy Harley 2008 25 Statement was false  Silence will not normally suffice  Except  Distortion of a positive representation (half truths)  Re Hoffman; ex p Worrell v Scilling  Krakowski v Eurolynx (graw 13.3.2)  Altered circumstances  With v O’Flanagan (Graw 13.3.2)  Lockhart v Osman (Graw 13.3.2)  Where there is a fiduciary relationship  Where contract is of the utmost good faith (e.g. insurance)

26. Copyright Guy Harley 2008 26 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

27. Copyright Guy Harley 2008 27 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)

28. Copyright Guy Harley 2008 28 Categories of Misrepresentation  Fraudulent misrepresentation  Negligent Misrepresentation  Innocent Misrepresentation  Misleading & Deceptive Conduct  Term of Contract

29. Copyright Guy Harley 2008 29 Fraudulent Misrepresentation  Representor made a false representation of fact  Knowingly  Without believing its truth or  was reckless as to whether it was true or false  Can sue for damages for tort of deceit whether a term of the contract or not

30. Copyright Guy Harley 2008 30 Fraudulent misrepresentation (deceit)  Liability for fraud cannot be excluded  Remedy for fraudulent misrepresentation is damages Step 1 A false representation of fact was made (beware of promises, opinions or a mere puffery) Step 2 The representation was intended to (and did) induce the representee to act ; (eg, by creating a contract) Step 3 The false representation was fraudulent: the representor knew the statement was untrue, or was reckless as to its truth

31. Copyright Guy Harley 2008 31 Negligent Misrepresentation  There was a 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

32. Copyright Guy Harley 2008 32 Negligent misrepresentation  Liability for negligence can be excluded by an exemption clause  Remedy for negligence is damages

33. Copyright Guy Harley 2008 33 Duty of Care  Fiduciary relationships  Special relationships  A person gives information or advice on a serious matter where he knows, or ought to know, that he is being trusted to give the information and knows that the other party relies and acts on the advice (Shaddock v City of Parramatta)  Applies to experts and non-experts

34. Copyright Guy Harley 2008 34 Innocent misrepresentation  Representor did not know it was false and owed no duty of care to the representee  Will be voidable for mistake  No damages claimable  But see s7 Misrepresentations Act

35. Copyright Guy Harley 2008 35 Misrepresentations Act  Damages available for all misrepresentations, including innocent misrepresentation  Defence to misrepresentation if representor can prove:  Had reasonable grounds for believing representation was true; or  They were n ot person who made statement and did not know that it had been made or that it was untrue

36. Copyright Guy Harley 2008 36 Misleading & Deceptive Conduct  Section 52 Trade Practices Act  No need for fraud or negligence

37. Copyright Guy Harley 2008 37 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.

38. Copyright Guy Harley 2008 38 Remedies for Misrepresentation  Recission  Contract is void ab initio  Not the same as termination  Damages

39. Copyright Guy Harley 2008 39 Capacity to Contract

40. Copyright Guy Harley 2008 40 Contracts with Minors  Anyone under 18 years of age  Contracts with minors can be  Valid – legally enforceable  Voidable – legally enforceable until repudiated by the minor

41. Copyright Guy Harley 2008 41 Contracts with Minors (Cont)  Valid contracts  Supply of necessaries  Contract for the supply of goods and services that are suitable to the condition in life of the minor and to his actual requirements at the time of sale and delivery  Onus is one person seeking to enforce contract against minor  Nash v Inman  Reasonable price not contract price  Beneficial contracts of service

42. Copyright Guy Harley 2008 42 Contracts with Minors (Cont)  Beneficial contracts of service  E.g. apprenticeships  Must be for the benefit of the minor  Ratification by Minor after turning 18  Contract becomes valid and enforceable