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

1. Misrepresentation (Sweeney & O’Reilly 2nd Ed Chapter 3 pp 56 – 58 & Chapter 9 p 257)

2. 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

3. 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

5. Categories of Misrepresentation • Fraudulent misrepresentation • Representor knew it to be false or was reckless as to whether it was true or false

6. Fraudulent misrepresentation (deceit) • Liability for fraud cannot be excluded • Remedy for fraudulent misrepresentation is damages.

7. 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

8. Negligent misrepresentation • Liability for negligence can be excluded by an exemption clause • Remedy for negligence is damages.

9. 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

10. Categories of Misrepresentation • Misleading & Deceptive Conduct • Section 52 Trade Practices Act • No need for fraud or negligence

11. 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.

12. 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

13. 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

14. 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

15. 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

16. 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)

17. Remedies for Misrepresentation • Recission • Contract is void ab initio • Not the same as termination • Damages

18. Duress, Undue Influence, Unconscionable Conduct and Mistake (Sweeney & O’Reilly 1st Ed Chapter 9 pp 219 – 224, 2nd Ed Chapter 9 pp 261 – 266)

19. Duress • A contract entered into due to coercion or force can be rescinded • Coercion can be: • To the person; • To goods; or • Economic duress

20. 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

21. 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)

22. 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)

23. 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

24. 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

25. 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.

26. 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

27. 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)

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

29. 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

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

31. 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)

32. 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

33. 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)