FINAL LAWS1075 EXAM NOTES CONTENTS Establishing Contract Formation VITIATING

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1 FINAL LAWS1075 EXAM NOTES CONTENTS Establishing Contract Formation VITIATING FACTORS Misrepresentation Misleading and Deceptive Conduct ACL Unconscionable conduct-equity Unconscionable conduct-s20/21 ACL Undue influence Duress Mistake Rule in Yerkey v Jones/Husband-wife relationships Third Party Impropriety Construction of contractual terms Express Terms Exclusion Clauses Implying Terms Frustration Doctrine Frustrated Contracts Act 1978 (NSW) TERMINATION Termination by Agreement Termination for Failure of a Contingent Condition Termination for Breach Termination for Repudiation Termination for Delay REMEDIES Rescission in Equity Compensation Action for Debt Damages Unfair Contract Terms/Customer Guarantees Unfair Contract Terms-ACL Contracts Review Act 1980 (NSW) Remedies

2 ESTABLISHING CONTRACT FORMATION KEY QUESTION: Is the contract binding? (OBJECTIVELY ESTABLISHED) 1. OFFER must take the form of a proposal for consideration, which gives the offeree an opportunity to choose between acceptance and rejection (Brambles v Bathurst) 2. ACCEPTANCE- Unqualified, unconditional assent to the terms of an offer (Toll (FGCT) v Alphapharm) 3. CONSIDERATION PAST CONSIDERATION is not good consideration (Roscorla v Thomas) EXCEPTION where the promise is made where services are rendered in circumstances that give rise to the implication that they will be payed for; then past performance is sufficient consideration (Stewart v Casey) CONSIDERATION MUST BE SUFFICIENT BUT NEED NOT BE ADEQUATE-doesn t need to be proportionate value to the promise. Need not be adequate: ie the price need not be of equal value to the promise- Chapell v Nestle IT MUST be of value to the promisor 4. INTENTIONS-Legal Intentions to enter into an agreement (Merrit v Merrit), when there was a formal process to the preparation of terms-more difficult to argue parties didn t have legal intentions to enter into the agreement. 5. CERTAINTY & COMPLETENESS-Agreement must therefore be sufficiently certain and sufficiently complete to constitute a binding contract, no illusory promises (Hall v Busst) Are the terms promissory? i.e. when terms are express and in writing, and express intentions of parties as per prior negotiations, they are promissory, to escape liability under contract, might need to prove the affirmative presence of a vitiating factor. 2

3 Vitiating Factors EXAM TIP: It is important to remember that the establishment of vitiating factors as inducement to enter into contracts will attract various remedies including rescission of contract and making it voidable, HOWEVER, these remedies won t be available if the vitiating factors are present to prevent the enforcement of an existent contractual right, i.e. termination, in this circumstance, would need to look at ACL for remedies-i.e. s18 misleading and deceptive conduct in trade/commerce Establishment of misrepresentation makes a contract voidable There are three types of misrepresentation: FRAUDULENT no belief in the truth of the representation NEGLIGENT made in breach of duty of care INNOCENT neither fraudulent nor negligent, but still false Misrepresentation 1. Was there a false statement of past or existing fact express or implied? The false representation may be either a statement of fact (Smith v Land & House Property Corporation) or a statement of law (Public Trustee v Taylor), and the falsity of the statement may be unknown (innocent misrepresentation) or known (fraudulent misrepresentation) STATEMENTS OF FACT V MERE PUFF Paterson et al describe mere puff or sales talk as extravagant and colourful language that no reasonable person would take literally. Relevant factors includes: CONTEXT in the case of real estate advertising, some hyperbole may be expected eg Perfect Presentation in Mitchell v Valherie EXTENT OF THE REPRESENTATION eg Nothing to Spend was a representation of fact regarding the presentation of the house, but said nothing about whether the house was structurally sound: Mitchell v Valherie SPECIFICITY OF WORDING: Less specific wording is more likely to be mere puffery BUT see Pryor v Given where the statement that a property was A wonderful place to live gave the impression that it was zoned for urban use STATEMENTS ABOUT THE FUTURE: Statements about the future in themselves cannot be misrepresentations as they are by nature uncertain (Fitzpatrick v Michel) But pre-contractual or contractual promises do imply a representation that the party has a present intention to carry out the promises made : Beach Petroleum v Johnson A statement about the future will likely represent a party s opinion about what will happen in the future (Edgington v Fitzmaurice), or may also demonstrate that the party knows of facts which may lead them to hold that opinion about the future (Fitzpatrick v Michel) A misrepresentation as to the state of a man s mind is therefore, a misstatement of fact. Edgington v Fitzmaurice 2. Was there a positive misrepresentation of fact? During the course of negotiations, a party makes a representation of fact, and circumstances change which mean that that representation of fact becomes false, then the party will be under a duty to correct the representation (Ibid) RULE: There is generally no duty on a party in negotiations for a contract to disclose material facts of which they may be aware of to the other party (Smith v Hughes) 3

4 EXCEPTIONS ARE: MISREPRESENTATION OF FACT V SILENCE False impressions - created by a true statement which is not qualified, or which later is discovered to be untrue or becomes untrue as a result of later events: Jones v Dumbrell CONTRACTS OF INSURANCE (contracts of utmost good faith) require the applicant to disclose all material facts. CONTRACTS OF GUARANTEE require disclosure of circumstances which were not naturally to be expected... :Westpac v Robinson FIDUCIARY RELATIONSHIPS require most ample disclosure of everything when entering a contract with the beneficiary, including, eg, where an agent is in a fiduciary relationship with a principal: McKenzie v McDonald (real estate agent contracting with widow to swap her farm for his lowervalued house). CONTRACTS FOR SALE OF LAND duty on vendor to disclose latent defects of title. DUTY OF CARE may give rise to duty to disclose facts or provide advice. STATUTE eg corporations law; consumer credit law; food-labelling law. The specified classes of relationship are typically those which are fiduciary and impose a duty of entire disclosure of factual circumstances (Davies v London): (1) Solicitor and client (2) Trustee and beneficiary (3) Guardian and ward Some relationships also require a more limited duty of disclosure of relevant facts (Davies v London & Provincial Marine Insurance Co): (1) partners, (2) an insured under an insurance contract (uberrimae fides) A principal and agent relationship may also fall into a fiduciary relationship and attract a duty of entire disclosure, based on the following factors (McKenzie v McDonald): Whether the principal is in a difficult situation The importance of the transaction to the principal or their livelihood The extent of the authority conferred on the agent in relation to transactions The agent s knowledge of the principal s affairs relating to the transaction However, an agent may show that a reasonable use has been made of the confidence reposed in him under the fiduciary relationship, but still must give disclosure (McKenzie v McDonald) STATEMENT OF OPINION V STATEMENT OF LAW: Increasing erosion of the original principle that a misstatement of the law is not a misrepresentation for these purposes Paterson et al A mere opinion / statement of belief does not amount to a misrepresentation of fact. However, a court may find that a statement of fact is implied by a statement of opinion. [I]f the facts are not equally known to both sides, then a statement of opinion by one who knows the facts best involves very often a statement of a material fact, for he impliedly states that he knows facts which justify his opinion. : Smith v Land & House Property Corp ( a most desirable tenant ). If a statement is the honest expression of an opinion honestly entertained, it doesn t involve any fraudulent misrepresentation of fact. Fitzpatrick v Michel A statement of law is actionable because it represents the opinion of the party holding it as to what the law is (Public Trustee v Taylor): [T]he same rights and consequences should flow from the making of fraudulent misrepresentation of law by which a party was induced to enter into a contract and from the making of a fraudulent misrepresentation of fact. 4

5 3. Was there a reliance on the misrepresentation by the representee in entering a contract with the representor? The representation made must have been material to the contract in order to have induced the other party to enter into it AND The representation also must have actually been relied on by the other party in deciding whether to enter into the contract If the representee does not know of the representation, or makes its decision to enter the contract solely on the basis of its own investigations, there is no reliance. Must establish causal and not-too-remote link between the misrepresentation and the representee s entry into the contract: Paterson et al. The representation need only contribute to the formation of the contract it need not be the sole factor influencing the representee to enter the contract: Gould v Vaggelas But the mere fact that the representee had the opportunity to make its own investigations to determine whether the representation was in fact true, does not mean it did not rely on the misrepresentation: Redgrave v Hurd 5

6 S18 Australian Consumer Law-Misleading and Deceptive Conduct MISLEADING AND DECEPTIVE CONDUCT S18 ACL Section 18(1) Australian Consumer Law: A person shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. (NB: s52 of Trade Practices Act was the predecessor to this provision) s(2)(1) ACL- Trade and commerce means: (a) Trade and commerce within Australia; or (b) Trade and commerce between Australia and places outside Australia; and includes any business or professional activity (whether or not carried on for profit) NB: ACL s 4 makes a representation re a future matter without reasonable grounds is deemed to be misleading or deceptive unless the representor proves they had reasonable grounds for making the representation. PROVISION APPLIES TO CONDUCT BY: Corporations Unincorporated entities and individuals (as a result of the passage of laws enacting in the ACL in each of the States and Territories) Govt entities to the extent that they are carrying on business Professional activities and advice (s2(1)) 1. Whether the relevant Conduct is In Trade or Commerce? There is no need to demonstrate the conduct is part of the respondent s ordinary business activities: eg sale of a cosmetic clinic by a corporation that was not in the business of selling clinics: Bevanere v Lubidineuse But conduct that is merely incidental to the company s trade or commerce does not occur in trade or commerce: eg internal communications by one employee to another employee in the course of their ordinary activities: Concrete Constructions v Nelson A sale in a purely private capacity of a non-business asset is not in trade or commerce : eg private sale of land by an individual does not occur in a business context simply because advertisements in the press etc are used to market the property: O Brien v Smolonogov On the other hand, a real estate agent s conduct while engaged to sell a private property may occur in trade or commerce, as may the sale by an individual of property or assets used for a business activity: Havyn Pty Ltd v Webster May still be in trade or commerce if the person engaged in the conduct was not acting in their own right, or as proprietors of a business, but only on behalf of their employer: Houghton v Arms (employees of web design company who represented that a web- based payment system could be set up easily). May still be in trade or commerce if it is in the trade or commerce of the person to whom the representation is made: eg TCN Channel Nine v Ilvariy ( A Current Affair misrepresenting interest in building a home to gain access to company s building). 2. What is the Relevant Audience The Misleading/Deceptive Conduct is Directed To? Consider the audience to determine characteristics of audience and therefore how the conduct might reasonably be received and interpreted by that audience Section doesn t apply if conduct was misleading/deceptive towards consumers 6

7 When Conduct is directed at the GENERAL public 1. TEST: What are the characteristics of a single hypothetical representative member of the class in question?-campomar Sociedad Limitada v Nike International The court assesses the reaction of the public at large with a reference to the ordinary person, ignores fanciful reactions. The reasonable person should be taking reasonable care (for example, an ordinary consumer would check if pet food marked 'NIKE' is actually Nike or not) 2. Whether a not insignificant number of reasonable people in the target audience would be misled or likely to be misled: Peter Bodum A/S v DKSH Australia Conduct may be directed at the public at large, or a large section of it, where it is by a TV ad or other mass marketing-paterson et al The hypothetical member of the relevant class may also be treated as having some background knowledge of the allegedly misleading conduct: eg ACCC v TPG Internet (2013) (advertisement for broadband services with fine print that the advertised rate was only available when bundled with TPG landline services) WHEN CONDUCT IS DIRECTED AT AN INDIVIDUAL/GROUP In considering whether the relevant conduct was misleading, the court will consider the nature of the parties, the character of the transaction, what each party knew about the other: Butcher v Lachlan Elder Realty The estate agents had a small staff and made a disclaimer clarifying that they did not claim that the survey diagram was accurate, while the purchasers were intelligent and self-reliant business people buying a very expensive property with the aid of professional advisers the conduct was not misleading or deceptive. Cf McHugh JA dissenting judgments which considered the estate agent s conduct more generally, including conversation about where a pool could be placed during an inspection, and the purchaser s lack of knowledge of the nuances of land law. Potentially more objective tests applying when parties are well-resourced, and subjective tests applying elsewhere. Remedies for loss suffered in contravention of s18 ACL DAMAGES to compensate for that loss: ACL s 236 INJUNCTION to restrain breaches and attempted contraventions of s 18: ACL s 232. OTHER APPROPRIATE ORDERS-The court may grant orders it thinks appropriate to prevent loss or likely loss being suffered (ACL s 237), including declarations that the contract is void, or must be varied, or that a person should refund money or return property (ACL s 243) 3. Was the Conduct Misleading/Deceptive? Conduct which merely causes confusion in the mind of an audience does not answer the description of misleading or deceptive (Campomar v Nike International), it must be capable of actually inducing error (Butcher v Lachlan Elder Realty) and non-ambiguous. Conduct should be viewed as a whole having particular regard to its context: eg in the case of TV ads, courts focus on the general impression created by the ad since viewers are unlikely to pay close attention: Pacific Dunlop v Hogan Cf short brochure given to prospective purchasers of expensive property is likely to be given detailed attention: Butcher v Lachlan Elder Realty Not necessary to show that the person engaged in the conduct knew that it was misleading or deceptive a person acting honestly may still infringe In assessing the conduct, the nature of the parties who have taken or may take part in the transaction is relevant, as well as the character of the transaction and the exact nature of the representations made, and any individual aspects, such as disclaimers, must be examined insofar as they had an impact on the conduct as a whole, not in themselves (Butcher v Lachlan Elder Realty) 7