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

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

Chapter 9 p 257)

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

  • 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.
  • 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
  • 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)

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

  • 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)