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

Misrepresentation

(Sweeney & O’Reilly 2nd Ed Chapter 3 pp 56 – 58 &

Chapter 9 p 257)


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


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


Action for misleading or deceptive conduct (breach of TPA s 52, Fair Trading Act or

ASIC Act)

Action for damages for tort

of deceit (fraud)

Action for damages for

tort of negligence

common law misrepresentations

statutory misrepresentations

Causes of action for misrepresentation

Action for breach of contract

contract law


Categories of Misrepresentation Fraudulent misrepresentation

Representor knew it to be false or was reckless as to whether it was true or false


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 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


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


Negligent misrepresentation

Did the representor owe a duty of care to the representee?

Were the representee’s losses caused by the

negligence and were the losses reasonably

foreseeable?

Step 1

Has the representor failed to exercise the required standard of

care?

Step 2 Step 3

Liability for negligence can be excluded by an exemption clause

Remedy for negligence is damages.


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


Categories of Misrepresentation Misleading & Deceptive Conduct

Section 52 Trade Practices Act No need for fraud or negligence


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.

Is the representee covered by the TPA,

ASIC Act and/or state legislation (eg FTA (Vic))?

What remedies are appropriate under the

relevant Act(s)?

Has the representee committed ‘misleading

or deceptive conduct’and was this ‘in

trade or commerce’?


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


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


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


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


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)


Remedies for Misrepresentation Recission

Contract is void ab initio Not the same as termination

Damages


Duress, Undue Influence, Unconscionable Conduct and

Mistake

(Sweeney & O’Reilly 1st Ed Chapter 9 pp 219 – 224, 2nd Ed Chapter 9 pp 261 – 266)


Duress A contract entered into due to coercion or

force can be rescinded Coercion can be:

To the person; To goods; or Economic duress


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


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)


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)


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


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


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.


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


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)


Recission

(Sweeney & O’Reilly 1st Ed Chapter 9 pp 216 – 219, 2nd Ed pp 257 - 261)


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


Rescission is available for: Misrepresentation Unconscionable conduct Duress Undue influence Mistake


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)


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


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)

Documents

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