THE LAW OF COMMERCIAL CONTRACT Misrepresentation Sweeney OReilly

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 § S 52 Trade Practices Act & s 11 Fair Trading Act § Removed distinction between fraudulent, negligent and innocent misrepresentation § Built upon previous law regarding misrepresentation

THE LAW OF COMMERCIAL CONTRACT

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 75 AZC 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 p 3959) § Krakowski v Eurolynx (note - S&OR p 4060) § Altered circumstances § Lockhart v Osman (S&OR p 4060) § 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 House Property Corp (S&OR p 3959) § 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 p 4161) § 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 p 4060) § Representee is not required to investigate § Redgrave v Hurd (S&OR p 4161)

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 commercial parties have to be fair to one another § A threat to break a contract can be economic duress § North Ocean Shipping v Hyundai (p 220262) § A lawful threat may be illegitimate § Cockerill v Westpac (S&OR p 220263)

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 p 263) § Presumed in special relationships and where one party is in a position of dominance or confidence § O’Sullivan v Management Agency (S&OR p 221264) § Lloyd’s Bank v Bundy (S&OR p 222265)

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 p 219261) § Commercial Bank v Amadio (S&OR p 6186) § 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 § s 51 AA Trade Practices Act and s 7 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. § S 82 Trade Practices Act & s 159 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 p 223)

THE LAW OF COMMERCIAL CONTRACT Recission (Sweeney & O’Reilly 1 st Ed Chapter 9 pp 216 – 219, 2 nd Ed pp 257 - 261)

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 p 218260)

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 third party gains an interest § Car & Universal Finance Co v Caldwell (S&OR p 218260)