Contract Law B Expert Notes - StudentVIP
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Contract Law B Expert Notes ELEMENTS OF MISREPRESENTATION - What has to be shown to constitute actionable misrepresentation? ...................................................................................................................... 9
Transcript of Contract Law B Expert Notes - StudentVIP
Contract Law B Expert Notes
ELEMENTS OF MISREPRESENTATION - What has to be shown to constitute actionable
misrepresentation? ...................................................................................................................... 9
*Forms of misstatement of Fact ................................................................................................... 9
*Forms that aren't a misstatement of fact ................................................................................. 10
What is a material inducement? ............................................................................................ 15
The issue of materiality .............................................................................................................. 16
Exclusion Clauses and Misrepresentation ................................................................................... 17
Quick points to note................................................................................................................... 18
Mistake must be an operative mistake to affect validity of contract: Brennan v Bolt Burdon
(a firm) [2005]. ........................................................................................................................... 18
How common law and equity treat mistake. ............................................................................... 19
Salient points to note about Mistake. ............................................ Error! Bookmark not defined.
Common mistake. .............................................................................. Error! Bookmark not defined.
Were there any machines? ................................................................. Error! Bookmark not defined.
When can a contract be avoided for common mistake? .............. Error! Bookmark not defined.
Mutual mistake.................................................................................. Error! Bookmark not defined.
Unilateral Mistake ............................................................................. Error! Bookmark not defined.
Unilateral mistake of identity .............................................................. Error! Bookmark not defined.
Unilateral mistake of terms of a contract ............................................ Error! Bookmark not defined.
Mistake as to nature of document (Non Est Factum or “It is not my deed”.) ..... Error! Bookmark not
defined.
What is duress? ................................................................................. Error! Bookmark not defined.
Distinguishing Duress form Undue Influence and unconscionability: Crescendo Management
Pty Ltd v Westpac Banking Corporation (1988) NSWLR. ...................... Error! Bookmark not defined.
There are cases where a threat may be illegitimate when coupled with demand for payment
even if the threat is one of lawful action. ........................................ Error! Bookmark not defined.
Lawful duress ........................................................................... Error! Bookmark not defined.
Three categories of Duress ...................................................... Error! Bookmark not defined.
Duress of the person .......................................................................... Error! Bookmark not defined.
Money paid under duress is recoverable. Why? ..................... Error! Bookmark not defined.
How about moral pressure? .................................................... Error! Bookmark not defined.
Duress of goods ................................................................................. Error! Bookmark not defined.
Economic duress. (p 338) .................................................................... Error! Bookmark not defined.
Delay in action is a valid defence: .................................................... Error! Bookmark not defined.
Ordinary commercial pressure to sign guarantee for a deal is acceptable: ... Error! Bookmark not
defined.
The pressure must play a part in the decision of a party to sign a contract: . Error! Bookmark not
defined.
Pressure in matters of loans of sums of money: ............................. Error! Bookmark not defined.
What are the remedies available for duress? ...................................... Error! Bookmark not defined.
How do you identify undue influence? ................................................ Error! Bookmark not defined.
Categories of undue influence ............................................................. Error! Bookmark not defined.
Actual undue influence ........................................................................ Error! Bookmark not defined.
Presumed undue influence .................................................................. Error! Bookmark not defined.
Class 2 A undue influence .................................................................... Error! Bookmark not defined.
Class 2 B undue influence .................................................................... Error! Bookmark not defined.
Undue influence and third parties ....................................................... Error! Bookmark not defined.
Rebuttal of undue influence ................................................................ Error! Bookmark not defined.
Independent advice ............................................................................. Error! Bookmark not defined.
Lack of improvidence ........................................................................... Error! Bookmark not defined.
General equitable defences ................................................................. Error! Bookmark not defined.
Undue influence and third party guarantees....................................... Error! Bookmark not defined.
Yerkey v Jones principle - Related to spousal guarantees................ Error! Bookmark not defined.
What are the remedies that the weaker party may utilise? ................ Error! Bookmark not defined.
What is unconscionable conduct? ....................................................... Error! Bookmark not defined.
Equitable relief ..................................................................................... Error! Bookmark not defined.
Elements/What constitutes an unconscionable transaction? ............... Error! Bookmark not defined.
Unconscientious exploitation of the disadvantage .............................. Error! Bookmark not defined.
What are the defences available to the stronger party? ...................... Error! Bookmark not defined.
Remedies ........................................................................................... Error! Bookmark not defined.
Unconscionability and Undue Influence. ............................................. Error! Bookmark not defined.
Statutory unconscionability pursuant to Australian Consumer Law ..... Error! Bookmark not defined.
A person must not, in trade or commerce, engage in conduct that is unconscionable,
within the meaning of unwritten law from time to time. ....... Error! Bookmark not defined.
Unconscionable conduct in connection with goods and services-Section 21 of the ACL. .......... Error!
Bookmark not defined.
Remedies under the ACL .................................................................... Error! Bookmark not defined.
Privity and its relationship to the Doctrine of Consideration ................ Error! Bookmark not defined.
What remedies may be had against the promisor who breaches an obligation to pay a third party?
.......................................................................................................... Error! Bookmark not defined.
Damages in Common Law .................................................................. Error! Bookmark not defined.
On behalf of non-economic loss from family on holiday. ................ Error! Bookmark not defined.
Carriage of goods where parties have interest in goods - The Alberzo [1977] AC. ................ Error!
Bookmark not defined.
Specific performance that 3rd party can seek in equity - Exceptions of Fact ...... Error! Bookmark not
defined.
LEGITIMACY OF DOCTRINE OF PRIVITY ................................................ Error! Bookmark not defined.
Exceptions to the doctrine of privity - Law of Agency - Exceptions of Fact ......... Error! Bookmark not
defined.
Another exception (by Fact) to Doctrine of Privity in Shipping case. Exclusion clauses and
protection of third parties from liability altogether or limiting liability for a fixed sum (39.47 of txt)
.......................................................................................................... Error! Bookmark not defined.
AREA of law extends to carriage of good by road. .......................... Error! Bookmark not defined.
Exception (by Fact) by Covenants on land ........................................... Error! Bookmark not defined.
Exception (by Fact) by Trusts .............................................................. Error! Bookmark not defined.
For trust relationships to arise two points need to be examined: ............ Error! Bookmark not
defined.
Exception (by Fact) by Equitable Estoppel ........................................... Error! Bookmark not defined.
Exception (by Fact) by Unjust enrichment ........................................... Error! Bookmark not defined.
Statutory Exceptions (refer to text book) ............................................ Error! Bookmark not defined.
Insurance Contracts ........................................................................... Error! Bookmark not defined.
What is an exclusion/exemption/exception clause? ............................ Error! Bookmark not defined.
Three issues that may need to be determined in cases involving exclusion clauses: ................ Error!
Bookmark not defined.
CONSTRUCTION OF EXCLUSION CLAUSES ............................................ Error! Bookmark not defined.
Finding normal and ordinary meaning of term - using contextual approach . Error! Bookmark not
defined.
Exclusion Clauses and Negligence ........................................................ Error! Bookmark not defined.
When is negligence excluded? ............................................................. Error! Bookmark not defined.
In other words, what is regarded as sufficiently wide enough to exclude liability for negligence if
there is no express reference to negligence? ...................................... Error! Bookmark not defined.
An application of part of third rule in the Canada Steamship case, and that is, if the words used
are wide enough to cover negligence. ............................................. Error! Bookmark not defined.
If the breach is negligence and the exemption clause relates to negligence, then the clause will
stand. ............................................................................................... Error! Bookmark not defined.
Why did the decision go against the drafter of the exclusion clause in White v John Warwick?
............................................................................................................. Error! Bookmark not defined.
The Canada Steamship principles apply in Australia ....................... Error! Bookmark not defined.
Other relevant principles of construction ............................................ Error! Bookmark not defined.
Deviation cases .................................................................................... Error! Bookmark not defined.
Four Corners Rule ................................................................................ Error! Bookmark not defined.
Exclusion Clauses and Legislation ....................................................... Error! Bookmark not defined.
Introduction to the ACL ...................................................................... Error! Bookmark not defined.
MISLEADING AND DECEPTIVE CONDUCT (PART ONE) .......................... Error! Bookmark not defined.
"A person must not, in trade or commerce, engage in conduct that is misleading and
deceptive or likely to mislead or deceive." ...................................... Error! Bookmark not defined.
What has to be established? .............................................................. Error! Bookmark not defined.
The perpetrator .................................................................. Error! Bookmark not defined.
Difference between Misleading conduct and Misrepresentation ....... Error! Bookmark not defined.
What is conduct 'in trade and commerce'? ......................................... Error! Bookmark not defined.
Private sales by individuals is not in the course of trade or commerce. ........ Error! Bookmark not
defined.
The meaning of Engage in Conduct ..................................................... Error! Bookmark not defined.
Silence or 'refusing to do any act' ........................................................ Error! Bookmark not defined.
Misleading or deceptive conduct must be deliberate ..................... Error! Bookmark not defined.
Some relationships require facts to be disclosed. ........................... Error! Bookmark not defined.
When silence won't lead to misleading or deceptive conduct ........ Error! Bookmark not defined.
Two categories of Silence in cases ....................................................... Error! Bookmark not defined.
What is regarded as in the course of trade and commerce? ................. Error! Bookmark not defined.
How do you establish misleading and deceptive conduct? .................. Error! Bookmark not defined.
In short, as long as the state of misled mind is brought about by the misrepresentation then it is an
actionable misrepresentation or deception. ....................................... Error! Bookmark not defined.
No break in chain of causation between misleading or deceptive statement and the impact the
statement has. ................................................................................. Error! Bookmark not defined.
MISLEADING AND DECEPTIVE CONDUCT (PART TWO ) AND STATUTORY UNCONSCIONABILITY Error!
Bookmark not defined.
Misleading and deceptive conduct. .................................................... Error! Bookmark not defined.
Recurring categories of conduct .......................................................... Error! Bookmark not defined.
Comparative advertising campaigns ............................................ Error! Bookmark not defined.
Character merchandising ............................................................. Error! Bookmark not defined.
Silence or failure to act ................................................................ Error! Bookmark not defined.
Representations about the future ............................................... Error! Bookmark not defined.
Opinions and predictions ............................................................. Error! Bookmark not defined.
The questions to ask as to whether the behaviour/ conduct constitutes misleading and deceptive
conduct. Based off the Gillette v Energizer These are: ........................ Error! Bookmark not defined.
Section 18 of ACL ............................................................................... Error! Bookmark not defined.
The distinction between misleading and deceptive conduct and mere puffs .... Error! Bookmark not
defined.
Who can rely on s 18 ACL? ................................................................... Error! Bookmark not defined.
How do you evaluate? ......................................................................... Error! Bookmark not defined.
SUMMARY OF EVALUATIVE PRINCIPLES .................................. Error! Bookmark not defined.
Scope of s 18 ACL ................................................................................. Error! Bookmark not defined.
Comparative advertising campaigns .................................................... Error! Bookmark not defined.
Application of 4 principles ...................................................... Error! Bookmark not defined.
Character merchandising ..................................................................... Error! Bookmark not defined.
Case studies: .................................................................................... Error! Bookmark not defined.
What is the bottom line for commencing an action for misleading and deceptive conduct? ... Error!
Bookmark not defined.
Silence and a failure to disclose ........................................................... Error! Bookmark not defined.
See ACL 2(2). .................................................................................... Error! Bookmark not defined.
Silence or failure to act as misleading or deceptive conduct .............. Error! Bookmark not defined.
Points to consider from Demagogue. ...................................... Error! Bookmark not defined.
Reasonable expectation of disclosure ................................................. Error! Bookmark not defined.
Relevance of Intention ......................................................................... Error! Bookmark not defined.
What about an inadvertent failure to disclose? .............................. Error! Bookmark not defined.
This was followed in: ........................................................................ Error! Bookmark not defined.
Semrani v Manouni .......................................................................... Error! Bookmark not defined.
Where is the certainty? .................................................................... Error! Bookmark not defined.
I would venture to say it depends on the effect that such failure to disclose has on the other
party. ................................................................................................ Error! Bookmark not defined.
Future Representations/opinions & promises ..................................... Error! Bookmark not defined.
Opinions ........................................................................................... Error! Bookmark not defined.
Background: Seafolly made and sold ladies swimwear, was in competition with company owned
by Ms Madden. Ms Madden thought Seafolly 'ripped off' her own designs and made a Facebook
album of pics saying that were copied. ........................................... Error! Bookmark not defined.
Representations ............................................................................... Error! Bookmark not defined.
Future representations - presumption of misleading conduct ............ Error! Bookmark not defined.
Statutory Unconscionability ............................................................... Error! Bookmark not defined.
ACL -SECTION 20 .................................................................................. Error! Bookmark not defined.
Dissecting ‘unconscionable conduct’. .................................................. Error! Bookmark not defined.
The Amadio principles in relation to unconscionability ...................... Error! Bookmark not defined.
Special disadvantage ........................................................................ Error! Bookmark not defined.
Unconscionable conduct in relation to Section 21 of ACL. .................. Error! Bookmark not defined.
What does 'Unconscionable' in ACL s 21 mean? ............................. Error! Bookmark not defined.
Unconscionable conduct in ACL s 20(1) has a different meaning to ACL s 21. ...... Error! Bookmark
not defined.
For ACL s 20 .............................................................................. Error! Bookmark not defined.
For ACL s21 ............................................................................... Error! Bookmark not defined.
What about Section 22? ...................................................................... Error! Bookmark not defined.
How does one interpret Section 22? ................................................... Error! Bookmark not defined.
Consequences of breach ...................................................................... Error! Bookmark not defined.
Unfair Contract Terms under the ACL.................................................. Error! Bookmark not defined.
Structure ........................................................................................... Error! Bookmark not defined.
Why is there a need for it? ................................................................. Error! Bookmark not defined.
Substantive or procedural unconscionability....................................... Error! Bookmark not defined.
Features of ACL Ch Pt 2.3.................................................................... Error! Bookmark not defined.
Contracts covered .............................................................................. Error! Bookmark not defined.
Consumer Contract .............................................................................. Error! Bookmark not defined.
Standard form contract? ...................................................................... Error! Bookmark not defined.
Definition ......................................................................................... Error! Bookmark not defined.
Rebuttable presumption .................................................................. Error! Bookmark not defined.
When is a term unfair? ....................................................................... Error! Bookmark not defined.
When is a term transparent? ........................................................... Error! Bookmark not defined.
Limbs of an unfair term. ....................................................................... Error! Bookmark not defined.
Terms that were unfair: ................................................................... Error! Bookmark not defined.
Unfair terms - transparency and contract as a whole. ........................ Error! Bookmark not defined.
When is a term transparent? ........................................................... Error! Bookmark not defined.
Contract as a whole ......................................................................... Error! Bookmark not defined.
Examples of unfair terms as set out in Section 25(1) of ACL. ................ Error! Bookmark not defined.
Exemptions from unfair contract terms - s28 ...................................... Error! Bookmark not defined.
Orders and remedies available ........................................................... Error! Bookmark not defined.
Part 2-3 -- Unfair contract terms ......................................................... Error! Bookmark not defined.
Consumer Guarantees under the ACL scheme. .................................... Error! Bookmark not defined.
When is there a statutory basis for seeking remedies, that is, in what circumstances? ............ Error!
Bookmark not defined.
Who is the consumer Acquiring goods and services as a consumer. ..... Error! Bookmark not defined.
First ground .......................................................................................... Error! Bookmark not defined.
Aggregation .............................................................................. Error! Bookmark not defined.
Second Ground - Objective test ........................................................... Error! Bookmark not defined.
How do you apply the above principles? ..................................... Error! Bookmark not defined.
The following factors should be noted. ............................................... Error! Bookmark not defined.
Guarantees as to acceptable quality - ACL ss 54, 55. ...................... Error! Bookmark not defined.
Difference between acceptable and merchantable quality of merchandise. .... Error! Bookmark not
defined.
Under Section 55, note that the goods have to be transacted pursuant to trade or commerce but
not a sale by auction. ........................................................................... Error! Bookmark not defined.
In respect of Section 56, ...................................................................... Error! Bookmark not defined.
In respect of Section 57, ...................................................................... Error! Bookmark not defined.
In Section 58, the manufacturer’s guarantees as to repairs and spare parts of goods supplied must
be upheld. - manufacturer's guarantees. ............................................ Error! Bookmark not defined.
For false or misleading representation see Section 29 (1) (m). ........... Error! Bookmark not defined.
Guarantees relating to services under Sections 60 to 62 of the ACL. .... Error! Bookmark not defined.
ACL s 60: ............................................................................................... Error! Bookmark not defined.
ACL s 61: ............................................................................................... Error! Bookmark not defined.
Due are and skill ............................................................................... Error! Bookmark not defined.
ACL s 62 ................................................................................................ Error! Bookmark not defined.
Section 64 - Excluding liability .............................................................. Error! Bookmark not defined.
S 64 ................................................................................................... Error! Bookmark not defined.
S 64 A ............................................................................................... Error! Bookmark not defined.
NOTE THE EXCEPTIONS. ....................................................................... Error! Bookmark not defined.
First exception ...................................................................................... Error! Bookmark not defined.
Second exception ................................................................................. Error! Bookmark not defined.
2016 LAW2CTB LECTURE 1 MISREPRESENTATION
Whether or not a statement is a term depends on intention of parties. If not a term the false statement made pre-contractually is a MISREPRESENTATION.
The statements are made as pre-contractual representations.
These statements may become part of the a contract.
Where those statements are false the innocent party can seek damages for breach of contract.
Or terminate contract if terms are conditions, warranties or intermediate terms.
One of the key remedies for misrepresentation is rescission of the contract. This ensures that the contract is set aside, leaving parties in their original pre-contract positions.
If the misrepresentation is fraudulent or is made negligently one pursues a remedy in the tort of deceit and negligence (respectively). Damages may be awarded in such an instance.
Representations will usually lead to misleading or deceptive conduct - s 18 ACL.
ELEMENTS OF MISREPRESENTATION - What has to be shown to constitute actionable misrepresentation?
1. A false statement of a past or present fact has been made before or at the time of the making of the contract;
2. Which induces the innocent party to enter into the contract;
a. INDUCES: Were you influenced by what the misrepresentor said to you. If you disbelieve the misrepresentor and go and try and uncover the truth but enter contract anyway, that is not misrepresentation.
b. It's still actionable if it's one of many reasons.
3. The misrepresentation was an inducement to enter into the contract. It need not be the sole inducement.
Elements looked at in turn
1. The misrepresentation must be of a fact past or present. It must be a misrepresentation of fact, not law.
However, please note that this distinction between misrepresentation of fact and misrepresentation of law has been regarded as an artificial distinction. In the context of mistake, the distinction between fact and law has been rejected.
The effect the misrepresentor's terms have on the misrepresentee.
The effect must be such that it is a reasonable influence the misrepresentee makes based on the misrepresentor's statements.
*Forms of misstatement of Fact
• The statement of fact that was falsified includes statements of law you cunt - what cunt knows all the law? : David Securities Pty Ltd v Commonwealth Bank of Australia (1992) CLR.
• In context of mistake this has been rejected: Classic International Pty Ltd v Lagos (2002) CLR.
• Misstatements about a person's rights, or if it is a deliberate misstatement of law that can be misrepresentation: Public Trustee v Taylor [1978] VR.
The nature of factual misrepresentations. A series of examples.
In Balfour and Clark v Hollandia Ravensthorpe NL, a real estate agent made the following misrepresentations of facts:
a. He misrepresented to the couple, Balfour and Clark that they could buy a house with a minimal deposit and a two year loan. - Inveigled (inducement).
b. Upon payment of the loan, a further loan to the extent of 90% of the value of the property could be arranged, provided the couple opened an account with Hindmarsh Building Society and saved 10% of the purchase price with them during the 2 year period.
c. However, the agent knew that in respect of the refinancing arrangement the couple on their income at that time, could not have afforded the payments on the refinancing scheme.
The full Court of South Australia found in favour of the couple on the basis of the allegation made by them that the agent had fraudulently misrepresented to them. The agent knew that the couple were ineligible to pay off the loan and the contract was rescinded.
2. In Edgington v Fitzmaurice the directors of the Army and Navy Provision Market made the following representations in their prospectus:
The prospectus gave reports on how they would use the money given by investors.
Further in the prospectus it stipulated that debenture bonds created rights over the company's property. Whatever you invested created an ultimate right/ a lien as a secured creditor on the company's property.
a. That the company was raising capital to improve its operations and renovate its new premises;
b. Further representations in the prospectus were that certain mortgages were not immediately payable;
c. That any monies used to purchase the debenture bonds would create a charge over the company’s property.
Edgingtion invested 1,500 pounds sterling in the company. No charge over its property was created. Monies invested were used to pay up existing loans. When the company was wound up, Edgington was paid a dividend of 45 pounds sterling as an unsecured creditor. No charge over company's properties.
Edgington’s suit against the Directors in their personal capacity was successful on the basis of fraudulent misrepresentation. (normally can't go and sue directors by lifting corporate vale unless the directors are in breach).
The commonality in the two above cases was the dishonest/fraudulent misrepresentations that were made.
*Forms that aren't a misstatement of fact
• Advertising puffery (i.e A car salesman who states that the car will go so fast that you will not see it).
• Statements of future intention are not misrepresentations as you can't make a fact about something that occurs in the future, unless: Civil Service Co-operative Society of Victoria v Blyth (1914) CLR:
The maker makes the statements without the genuine intention of fulfilling them; or
• Think about the Balfour case - the agent couldn’t be bothered to clarify what they're combined income was.
There are no reasonable prospects of fulfilling those expectations.
• Statements of opinion are not generally regarded as statements of fact.
• Where someone makes a statement of opinion it can be implied that their state of mind is consistent, if not then it is regarded as fraudulent: Ritter v North Side Enterprises Pty Ltd (1975) CLR.
EXAMPLE:
Mitchell v Valherie (2005) SASR.(mere puffery)
Background: An ad for sale of house which on the flyer said, 'Nothing to spend *Perfect presentation' and 'Cosy* Immaculate Style'.
Held: Mere puffery. Words don't amount to misrepresentation.
Reasoning: Evidence established that there were various structural defects in the home.
Civil Service Co-operative Society of Victoria v Blyth (1914) CLR - Mere puffery.
Assurances made about future by directors of the co-operative where that in the future they would not suspend withdrawals by the representee. This was not held to be misrepresentation.
Not all statements of in the future are not of presently existing fact:
Balfour & Clark v Hollandia Ravensthorpe NL (1978) SASR.
Background: Purchasers of a house were induced into the purchase on the basis of a statement made by one of three companies that operated as a group in the construction
and sale of homes. The first company built, the second sold, third provided loans to purchasers for two years to purchase the homes.
An agent of the second company told purchasers that they would be able to borrow from a stipulated building society in two years' time when it was necessary to repay the third company the balance of the loan borrowed at the time of purchase.
The agent was deemed to have known that the purchasers would not be able to obtain the necessary loan in two years' time because of the purchasers' combined income was too low.
Purchasers sort to set aside contract of purchase.
Issue: Whether the statement made by the agent was assurance as to the future or a statement of presently existing fact.
Held: It was a statement of fact = misrepresentation.
Reasoning: Future tense statement can really be about an existing fact. It wasn't an assurance as to the future, rather it was an existing fact about borrowing capability.
It was false statement about an existing fact.
Bisset v Wilkinson [1927] Ac - Opinion
Background: Statement made by vendor to sale of land, that never accommodated sheep, said he believed it could accommodate 2000 sheep.
Held: Merely a statement of opinion and not of fact.
Whether or not it is a fact or opinion depends on all relevant circumstances known to the representee, including the form statement is made and personal knowledge of person making statement. Subject matter of statement may be relevant - not necessary for determination: Middleton v Aon Risk Services Australia Ltd [2008] WASCA.
If statement of opinion is based on facts known to representor, but unknown to representee, the statement will be regarded as one of fact. --> Smith v Land and House Property Corporation, the representation made to Land and House by Smith was that the existing tenant was a ‘most desirable tenant’. In fact, the tenant had been in arrears a few times and went broke and went into liquidation prior to the completion of the sale of the property to Land and House.
Smith sought an order for specific performance for the sale of the property to Land and House. Land H defended on the basis of Smith’s misrepresentation as to the reliability of the tenant. The question was whether Smith’s statement as to the tenant was one of opinion or fact. As Smith clearly knew the tenant’s track record, it was held that the misrepresentation was one of fact.
See also Magill v Magill. The representee must have relied on the statement by the representor. In this instance there was no evidence that the husband had relied on the wife’s statement that the child she was carrying was theirs. In such an instance the husband’s action for tort of deceit failed.
The representation must be false.
Falsity of a statement requires a positive act by the representor.
A nod, wink, or shake of the head is sufficient: Walters v Morgan (1861) ER.
Smith v Hughes (1871) QB: Where there is no legal obligation to divulge a material fact, the silence of the representor is not regarded as actionable. The silence will not operate to avoid the contract.
Parties to a contract don't have to look after each other's best interests and can remain silent where s 18 ACL doesn't apply. Generally non-disclosure in these instances isn't misrep - due to principle of caveat emptor (let the buyer beware) in that the buyer is expected to conduct his due diligence before entering into the deal.
The repesentor may remain silent unless there is a special relationship between the parties in which there is a duty to disclose a material fact, or there is a requirement under ACL to do so. See Section 18 of the ACL.
The other categories of contracts where there is a duty to disclose material facts are in contracts of good faith (uberrima fidei) such as insurance contracts and in partnership contracts. In these two instances, the duty of disclosure of material facts has to be adhered to.
Non-disclosure in such contracts means that there is nothing material to disclose. Wilful non-disclosure from which the innocent party suffers loss is actionable.
What is ‘material’ in an insurance or partnership contract context? See page 275 of your text book:
1. Where the insured is aware that it is a material fact, that the insurer would want to know before deciding whether to accept the risk and if so, on what terms or reject the risk altogether.
2. A reasonable person would be expected to know that the fact that is undisclosed would be relevant to the insurer in that he would have wanted to know.
Please note that the above relate to the statutory duty of the insured to disclose material facts under the Insurance Contracts Act 1984 (Cth).
The falsehood engenders an expectation that induces the contract.
The circumstances in which there is no statutory duty of disclosure are in the following situations:
1. A fact which diminishes the risk; or 2. A fact of common knowledge ; or 3. The insurer knows in the ordinary course of business as an insurer ought to know; or 4. Where compliance with the duty of disclosure is waived by the insurer.
Even if a statement is only partially true or it is a distortion of the truth it is still a misrepresentation.
Tipperary Developments Pty Ltd v Western Australia (2009) WAR: A statement will be false if representor omits essential qualifying facts (facts that if the whole truth was known would have influenced a change in position of entering contract by a party).
Dimmock v Hallett: Here the misrepresentation was that the land was fully leased. However in reality, many of the tenants had served notices to quit. The vendor’s statement was held to be a misrepresentation, although at the time of making it, it was literally true.
In Krakowski v Eurolynx Properties Ltd (p 276 of text book), the inducement made by Eurolynx to Krakowskis to enter into the to purchase a shop premises was that they had found a tenant who was willing to lease the premises for a rental amount of $156,000.
What Eurolynx failed to disclose to the Krakowskis was that they had in a side agreement with the tenant agreed the following things:
1. That the tenant should remain rent free for the first 3 months; 2. They had given the tenant a payment equivalent to the tenant’s first year of rental.
The features of the side agreement between Eurolynx and the tenant, said the High Court amounted to a misrepresentation to the Krakowskis, there was a distortion of truth by failing to mention side agreement. In fact, the High Court went as far as holding that it was misleading and deceptive conduct under Section 18 of the ACL as well as fraudulent misrepresentation.
Mere silence- further thoughts on whether it engenders reasonable expectations.
• Depends on context of case if something should be disclosed. If mere silence does engender reasonable expectations, then the context in which silence as a false representation may be found. See Demagogue Pty. Ltd v Ramensky and the statement by Black CJ at page 276 of your text book.
• Also, representations may continue without being repeated unless modified or withdrawn. The representations must relate to the dealings between the parties. See Mbakwe v Sarkis (2009) page 276 of your text book.
• Also consider the context of the representation. If the context is one in which it is hard to be certain about facts and if it is an industry undergoing a restructure representations may not be held as fact but as mere estimates. Macquarie Generation v Peabody Resources Ltd [2000] NSWCA 361 at [70] per Beazley JA.
• Changed circumstances. If a representation is true when made but over time is no longer accurate, there is an obligation to disclose changed circumstances.
• Example: With v O’Flanagan, the state of the medical practice which was being sold changed drastically from the time of the first representation (1,480 patients) to about 1,260 patients. It was held that there was duty to disclose the change of circumstance. The court allowed the purchaser to rescind the contract.
In the Australian case of Lockhart v Osman, the failure to disclose the changed circumstances, was held to be a fraudulent misrepresentation, particularly if the initial representation was clearly known to be inaccurate. If the representor doesn't become aware that the statement is no longer true or never was true, they are guilty of innocent misrepresentation.
3. The representation must have induced the representee to enter into the contract.
• Must show that there was an intention to induce and that s/he relied on that inducement: Australian Steel & Mining Corporation Pty Ltd v Corben [1974].
A person to whom a representation has been made bears the onus of proof in establishing that a false statement of fact was made with the intention to induce a contract and, that they relied on the statement.
The representation need not have been the sole inducement but must be one of the factors taken into account by the representee in entering into the contract. The 5 principles set out in Dadounian Group International Inc v Simms are highly relevant:
1.Whether a representee has entered into a position upon the inducement of the representor is a question of fact.
2. The onus is on the representor that the representee was not induced to entering into the position, if in normal circumstances it would be reasonable to assume that the reasonable person (representee) would have entered the position.
3.The misrepresentation has to play a real and substantial part, but not a decisive part in inducing the representee to act.
4.The presumption of inducement of the representee as a result of the misrepresentation has to be rebutted by the misrepresentor, to the effect that it played no real or substantial part in inducing the representee to enter into the contract.
5.The court decides on a balance of probabilities as to whether the representee was induced into entering into the contract.
Representee has burden of proof: What the representee must show is that there is an intention to induce and that he relied on the inducement to enter into the contract. See Redgrave v Hurd.
If a representation is not directed to the other contracting party there can be no reliance and misrepresentation action will fail. In Peek v Gurney (1873) LR, promoters of a company issued a prospectus that contained false statements. P bought shares in company in reliance on prospectus.
Held: P had no rights for misrepresentation - there was no intention by the issuers of the prospectus to induce the P to enter into his contract.
What is a material inducement?
Redgrave v Hurd (1881) Ch D: p 278 text book. The inducement by the representor to the representee was that the income that the business was made in a year was 300 to 400 pounds sterling, to enter into the partnership.
If such a statement was in essence an untruth, then that provided a basis for rescinding the contract. That created an inference that the representee was induced by the representation.
If there is a time gap between first representation and actual signing (i.e 2-3 months) and the situaiton encounters a drastic change - you have the obligation to tell the representee the truth of the situation before signing. Keep the representee up to date as soon as there is a change.
Bear in mind the following situations:
• The inference that the representee was induced by the representation had to be rebutted by the representor that the representee was uninfluenced by it or that the representee knew it was false. See Gould v Vaggelas 56 ALR 31 at 46.
• If the representee is aware of the falsity but is not aware of the extent of falsity, then reliance on the part of the representee is established. See Gipps v Gipps at page 278 of your text book. A dispute concerning sales of shares in a family company. The seller was the wife and the buyer the husband. A number of representations were made relating to the value of stock and profit. The wife knew that the representations were wrong to some extent, however the NSW CA held that this knowledge did not preclude the wife from relying on the representations.
• If a false statement is made and the representee through his/her own queries establishes the falsehood, but still goes on to enter into the contract, then there is no misrepresentation. The falsehood in the circumstances could not have induced the representee to enter into the contract, after having found out the true position. See Holmes v Jones where the representee entered into the contract to purchase a rural property after finding out that the statements made as to the number of stock were false. No misrepresentation had occurred.
1. In Senanayake v Cheng the representation which induced C to enter into the partnership was S’s representation that the business was a ‘goldmine’. It was only after C had entered the business and had access and went through the books that she realised that the stock brokerage was not as represented. It was held that she had been induced by the representation made by S and was allowed to rescind the contract.
• If a representee had the opportunity to inquire into the accuracy of the statement but declined to do so, reliance is still operating and misrepresentation is established. Leading on from this see Peekay Investment Ltd v Australia and New Zealand Banking Group pg 279 of your text book, where it was held that the representor has to show that the representee actually discovered the truth before entering into the contract. The fact that the representee could have discovered the truth is insufficient to rebut misrepresentation.
• The false statement made need not be the sole inducing factor but a real factor in inducing the representee to enter into a contract. See Edgington v Fitzmaurice and Henville v Walker. See what McHugh J says in Henville v Walker. The representation need not be the sole inducement but it may have played a minor part in the mind of the representee into entering into the contract. That is sufficient connection between misrepresentation and inducement to enter into the contract.
Thus in Mbakwe v Sarkis, the defendant who was the plaintiff’s financial adviser advised him to make 3 unsecured loans to a developer at an attractive rate of interest. The developer was in effect insolvent and the plaintiff lost his money. The plaintiff sued his financial adviser in negligence on the basis that the defendant owed him a duty of care, which he had breached. This was upheld by NSWCA.
The issue of materiality
In the context of general contract law, materiality means that the representor knew that the information provided was relevant to the decision of the insurer as to whether to enter into the contract, and if so, on what terms.
For fraudulent misrepresentation, the Australian position is that it clearly excludes the need for materiality of the statement to be an element.
If it's fraudulent misrepresentation all u need is inducement - you don't need materiality: Nicholas v Thompson [1924] VLR.
However, in innocent misrepresentation both materiality and inducement have to be present. See Macquarie Generation v Peabody Resources Ltd.
Kew Points from Lecture on Misrepresentation:
Following are required:
• Rep must be false
• If a statement is partially true or is a distortion of truth it is still a misrep
• Mere silence
• If mere silence doesn engender reaosnable expectations, then context in which silence as a alse rep may be found. See Demagogue pty ltd v Ramensky
The rep mus have induced the representee to enter into the contract.
What has to be shown to constitute actionable misrep?
The misrep must be of fact past or present. It must be a misrepresentation of fact, not law.
What is material inducement?
An inducement which is fundamental to one party's entering into the contract.
Balfour case 209
Or 271.
Different types of misrepresentations
Fraudulent Misrepresentation - where you intend party to be induced by your misrep to suffer detriment
Innocent Misrepresentation - where the misrepresentor had no idea the statement was actually false
Negligent misrepresentation - where the misrepor should have known the statement was false. By a reasonable person on balance of probabilities.
Exclusion Clauses and Misrepresentation
Peekay Intermark Ltd v Australia and New Zealand Banking Group Ltd [2006] EWCA: Contracts may have an express acknowledgment by both parties that they have not been induced to enter the contract by any representations other than the ones in the contract. This can be challenged if a party was induced to enter into it by misrepresentation. They have to give evidence and make clear why the clause should not give rise to equitable estopple.
Issue will be determined by:
1. Ascertain whether the exclusion or disclaimer, on true construction, covers the particular representation made;
2. Whether the exclusion or disclaimer s effective to exclude any reliance on the representation - taking into account the impact of legisln (i.e ACL).
MISTAKE
Quick points to note
Mistake must be an operative mistake to affect validity of contract: Brennan v Bolt Burdon (a firm) [2005].
Common law and equity treat mistake differently.
• Common law effect of a mistake is to make contract void ab initio. No property will pass under, nor obligation arise under it.
• If not at common law it may be void in Equity may be voidable on mistake grounds. Property will and obligations pass under t until it is avoided.
•
This together with Misrepresentation, is one of the most important topics in Contract Law. Why? Vitiating factors naturally lead us to consider remedies. In practice, it is useful to know what remedies are available to the client.
As in misrepresentation, so also in Mistake, justification may be provided to the innocent party to take steps to rescind the contract. The innocent party rescinds the contract once they realise that there is every chance that the other side is taking advantage of them. This is particularly so, if the innocent party has suffered loss or has the potential to suffer loss through no fault of his/her actions.
Particularly in unilateral contracts, the desire to rescind contracts is natural that if that party made a mistake and the other party is seeking to capitalize on that mistake in a manner not contractually agreed upon.
• A grey area:
o A mere mistake in judgement does not entitle a party to rescind the contract. A bad judgement.
• A party that's made an error must suffer the consequences unless induced.
o The law makes no distinction anymore between mistakes of fact and mistakes of law. Both are actionable.
o If you make a mistake in judgement: Where you are appraised of all the facts, the other side has not held anything back and you make a mistake which is not caused by the other side which is not wilful and there is an opportunity to fix the mistake and you don’t take advantage of this opportunity and you exercise a judgement erroneous to and detrimental to you - a mere error of judgement is not actionable unless the other party takes advantage of the mistake.
3 types of mistakes:
• Common Mistake
o the same mistake is made by both parties
IF a common mistake is made parties aren't at consensus idem
• Mutual Mistake
o both parties are mistaken but they make different mistakes.
o If both parties have made different mistakes they are not at idem.
• Unilateral Mistake.
o The other side has realised you've made a mistake and want to capitalize on it.
• Non Est Factum means that 'it is not my deed'. A successful plea of Non Est Factum renders the contract void ab initio, that is, void from the start.
The mistake must be an operative mistake. That is a mistake which renders a contract void or voidable.
How common law and equity treat mistake.
