Download Week 8 - Harley Legal Technology

THE LAW OF COMMERCIAL CONTRACT
Misrepresentation
(Sweeney & O’Reilly 2nd 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
Causes of action for misrepresentation
Action for
damages for tort
of deceit
(fraud)
Action for
damages for
tort of
negligence
common law
misrepresentations
Action for misleading or
deceptive conduct
(breach of TPA s 52,
Fair Trading Act or
ASIC Act)
statutory
misrepresentations
Action for breach of
contract
contract
law
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)
Step 1
A false representation
of fact was made (beware
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
 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
Step 1
Did the
representor owe
a duty of care to
the representee?
Step 2
Has the representor
failed to exercise the
required standard of
care?
Step 3
Were the representee’s
losses caused by the
negligence and were the
losses reasonably
foreseeable?
 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)
Is the representee
covered by the TPA,
ASIC Act and/or
state legislation
(eg FTA (Vic))?
Has the representee
committed ‘misleading
or deceptive
conduct’and was this ‘in
trade or commerce’?
What remedies are
appropriate under the
relevant Act(s)?
 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 1st Ed Chapter 9 pp 219 – 224,
2nd 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 1st Ed Chapter 9 pp 216 – 219,
2nd 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 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)