FUNDAMENTALS OF CONTRACT LAW
LAWS6991
The University of Sydney
Page 1
COMMONWEALTH OF AUSTRALIA
Copyright Regulations 2017
WARNING
This material has been reproduced and communicated to
you by or on behalf of the University of Sydney
pursuant to the Copyright Amendment (Disability Access and
Other Measures) Act 2017 (the
Act).
The material in this communication may be subject
to copyright under the Act. Any further reproduction or
communication of this material by you may be the
subject of copyright protection under the Act.
Do not remove this notice.
Students should note that the selling or purchase of lecture
notes, Unit Outlines, teaching materials, and downloading of
lecture recordings without permission, infringes this copyright.
DAY 4
VITIATING FACTORS
REVISION
Session 25
The University of Sydney
Page 3
Course Outline – where we are up to
DAY 1
• Introduction
• Formation
The University of Sydney
DAY 2
• Construction
DAY 3
• Discharge
• Remedies
DAY 4
• Vitiating
Factors
• Revision
Page 4
Aims for today and questions
Quick review of Day 3
• What was promised.
– Scope and standard of duty.
• Basis of discharge. See next slide.
• Common law classifications: condition, warranty, intermediate term.
• Repudiation.
• Time stipulations.
• Frustration and force majeure.
• Consequences of discharge.
– Terms enforceable after discharge.
– Recission.
• Remedies.
– Primary and secondary obligations.
– Damages.
The agenda today
• Vitiating factors.
The University of Sydney
Page 5
Basis of discharge
Five reasons for premature discharge
1. Later agreement.
• Raises different issues to breach. E.g., does a renegotiation satisfy the
necessity of consideration?
2. Exercise of an express right.
3. Frustration of contract.
Discharge without breach
4. Exercise of a common law right.
• Every breach gives a right to damages.
• Not every breach allows termination.
5. Exercise of a statutory right.
• Some consumer contracts, e.g., under ACL.
Discharge for breach
Election
• The parties must have a right to terminate and elect to do so. There is no
obligation to terminate.
The University of Sydney
Page 6
Terms enforceable after discharge
General rule
• Once a contract is discharged for breach or repudiation, promissory terms
cannot be enforced except to support accrued rights.
• Enforceability depends on the intention of the parties.
Type of term
Substantive promissory.
Procedural promissory, e.g.,
arbitration clauses, choice of
law provisions, notice
provisions.
Regulatory terms, e.g.,
exclusion clauses.
The University of Sydney
Enforceability?
No, subject to express
agreement.
Yes, even if promissory in
nature.
Yes.
Page 7
DAY 4
VITIATING FACTORS
Session 26
MISREPRESENTATION
The University of Sydney
Page 8
Common law - overview
Deceit
• In cases of fraudulent misrepresentation two rights:
– To rescind the contract.
– To claim damages.
‘Innocent’ misrepresentation
• No longer necessary to prove a ‘total failure of consideration’.
• Only need to prove that misrepresentation was ‘material.
• A right to damages made in breach of a duty of care, but no general right to
compensation for a reliance on misleading conduct.
Statutory reform
• Australian Consumer Law.
The University of Sydney
Page 9
Misrepresentation at common law (1)
Definition
• A false statement of a material fact which is intended to induce entry into a
contract and which has that effect.
The representation
• Usually found in a positive statement.
• Silence is not a representation, with the following qualifications:
– A duty to disclose may arise from the nature of the contract, e.g., a
contract of insurance – a duty to disclose all facts which would influence a
prudent insurer in deciding whether to offer cover.
– A ‘half-truth’.
– Circumstances change between making of a representation and the entry
into the contract.
The University of Sydney
Page 10
Misrepresentation at common law (2)
Falsity
• Where it does not accord with the true facts.
• An issue of fact.
• Representations can be true when made but false when contract made.
A material fact
• Statements which can be either true or false. Other statements may not be
such:
– The future e.g. that a particular event will occur.
– Intention e.g., that a person intends to do something.
– Opinion, expressing a personal view.
– The law, may be an expression of opinion.
The University of Sydney
Page 11
Fraudulent misrepresentation
Proof
• The common law takes a narrow view of what is fraud.
State of mind
• Critical proof required of the state of mind of the representor:
– Actual knowledge.
– Reckless indifference. Reckless as to whether true or not and not caring.
The University of Sydney
Page 12
Negligent misrepresentation
Negligence
• The tort of negligence occurs when a person, who owes a duty of care to
another, breaches that duty and causes the other damage or loss which is not
too remote.
State of mind
• Critical proof required of the state of mind of the representor:
– Actual knowledge.
– Reckless indifference: reckless as to whether true or not and not caring.
• Merely being careless is not fraud. Derry v Peek(1889) 14 App Cas 337(honest
belief that a prospectus true).
• Where information or advice is given, negligence may be proved. Hedley Byrne
& Co Ltd v Heller & Partners Ltd [1964] AC 465.
• Crucial issue is the presence of a duty of care. Not limited to those who
profess special skill or expertise. L Shaddock & Assoc. Pty Ltd v Parramatta City
Council (1981) 150 CLR 225.
The University of Sydney
Page 13
Statute
Australian Consumer Law s.18 ACL
• Conduct that is misleading or deceptive or is likely to mislead or deceive. The
principal example of statutory intervention, but other corporation and other
legislation also relevant.
• Creates a norm of conduct for those engaged in trade or commerce, which
has been given a wide scope Marks v GIO Australia Holdings Ltd (1998) 196 CLR
494.
Remedies
•
•
•
•
Damages.
Other orders to compensate, prevent or reduce further loss.
Injunctions.
Under common law, representee may rescind contract and recover money
paid. No such right under ACL. But orders under s.237 ACL, declaring contact
void, varying contract, requiring refund of money and other possible orders.
The University of Sydney
Page 14
DAY 4
VITIATING FACTORS
Session 27
MISTAKE
The University of Sydney
Page 15
Mistake
Mistake usually has no or little impact on contracts
• As a contract is a risk allocation device, it would defeat the purpose of that
device if one party could avoid a contract by saying merely that they would
not have entered into the contract if they had known the truth of the matter.
• Different if it is induced mistake – that is a matter of misrepresentation.
• Doctrine is restricted to pre-contractual mistake.
• Mispredictions are a matter for the law of frustration.
• Usually concerned with matters of fact.
Categories of mistake
• Common: both parties make the same mistake.
• Mutual mistake: each party makes a different mistake.
• Unilateral mistake: one party only makes a mistake.
The University of Sydney
Page 16
Common mistake
General rule at common law
• Common mistake generally has no impact.
• A contract may be void for fundamental common mistake (a total failure of
consideration). Bell v Lever Bros Ltd [1932] AC 161.
• English doctrine different but also very narrow. Great Peace Shipping Ltd v
Tsavliris (International) Ltd (The Great Peace) [2003] QB 679.
• The general rule does not apply in the case of a sale of specific goods. Void
if, unknown to both parties, the goods perish prior to entry into the contract.
Sale of Goods Act 1923 (NSW), s.11.
Recission for common mistake in equity in the UK
• Lord Denning asserts a general right in equity to set aside contracts if parties
under a common misapprehension. Solle v Butcher [1950] 1 kB 671.
• This position is not that in Australia. But there may be a limited number of
more specific circumstances when equity will intervene.
The University of Sydney
Page 17
Common mistake – a case study
McRae v Commonwealth Disposals Commission (1951) 84 CLR 377. Carter,
350.
• Approves Bell v Lever Bros but says it is a matter of construction. Were the
parties agree to be bound only if a particular state of affairs existed
(essentially a warranty of existence?).
• That is, it does not rest on there being an independent general law doctrine of
common mistake.
• Did the CDC warrant that a particular state of facts were in existence, i.e.,
there was a tanker on the reef (which in fact did not exist)?
• What is the correct question to ask?
The University of Sydney
Page 18
Mutual mistake (1)
Raffles v Wichelhouse [1864] 2 H & C 906; 159 ER 375.
Contract for sale of cotton. Two ships named Peerless due to leave Bombay –
one in October, the other in December.
The ‘October’
Peerless.
The University of Sydney
Page 19
Mutual mistake (2)
There may be no contract
• In order to have any legal impact, the mistake must be of a significant nature.
• It may be that there simply is no contract if the parties are talking at crosspurposes.
• In the Peerless, there was latent ambiguity as to the subject matter of the
contract. Extrinsic evidence allowed to resolve it, but it was incapable of being
resolved so there was no contract.
The University of Sydney
Page 20
Unilateral mistake
Some general rules
• Generally a contract is not affected by one party only being mistaken, so long
as the other party did not know of the mistake. It may be necessary to show
the first party was responsible for, or at least contributed to, the second
person’s mistake.
• A contract cannot be accepted by person whom a reasonable person in that
person’s position knows it is not intended for that person.
• Where a contract is wholly in writing, the parties to it are the persons named
in it.
– Dealings not face-to-face: Where parties negotiate at a distance, no
contract results from an agreement with a rogue who is pretending to be
someone else. Cundy v Lindsay (1878) 3 App Cas 459
– Dealings face-to-face. Treated as a case of misrepresentation.
• A contract that is not induced by misrepresentation cannot be avoided. But if
there is unconscionable conduct there may be a right to rescind, even if in
writing.
The University of Sydney
Page 21
Non est factum
The general rule
• A party is bound by a signed document whether or not they have read it.
The principle
• If no third party will be affected by a decision that the document is void, the
doctrine of non est factum (‘it is not my deed’) applies.
• Conditions.
– Protected class – mistaken party suffered from a relevant disability.
– Exploitation – the other party knew of the exploited disability.
– Fundamental difference between the effect of the document signed and the
effect the signer believed the document would have.
The University of Sydney
Page 22
Rectification
Documents not agreements
• Where there is a document that is mistaken and does not say what it actually
is meant to, rectification may be available.
• An equitable remedy, and subject to the discretion of the court.
• The document is rectified, not the contract.
The University of Sydney
Page 23
DAY 4
VITIATING FACTORS
Session 28
DURESS, UNCONSCIONABLE CONDUCT, UNFAIR TERMS
The University of Sydney
Page 24
Duress
Defined
• Duress describes ‘compulsion’.
• Often duress involves unlawful conduct, but it does not have to involve a
criminal act.
• A causal element is required.
Ingredients
• Threat. Of harm.
• Improper. As a matter of law. Intrinsically improper or improper because made
for an illegitimate purpose.
• Contract. The thing that is caused by the duress.
• Connection. The causal connection with the contract.
The University of Sydney
Page 25
Type of duress
To the person or goods
• Such as threats of violence or imprisonment.
• Causation must be proved but need only be one of the reasons for entry into
the contract.
Economic duress
• To the economic well-being of a person.
• Threats of pure economic loss. Pao On v La Yiu Long [1980] AC 614.
Void or voidable?
A contract entered into under duress is not void but voidable.
The University of Sydney
Page 26
Unconscionable conduct
‘Catching’ bargains
• The prior position was that relief can be given for unconscionable bargains –
that is, bargains with persons disadvantaged by poverty, age, youth, and illhealth.
• Now, there is a right to rescind the contract for an unconscionable bargain.
Case study
Commercial Bank of Australasia Ltd v Amadio (1983) 151 CLR 447.
Carter, 379.
The University of Sydney
Page 27
Unconscionable conduct under statute
Categories
• Unconscionable conduct under the ACL
– Within the meaning of the ‘unwritten law’: s.20(1)
– In connection with the supply of goods and services: ss.21-22.
• Unjust contracts under the Contracts Review Act 1980 (NSW)
– Whilst ACL deals with conduct, this is restricted to contracts.
• Unfair contract terms under the ACL Part 2-3.
The University of Sydney
Page 28
DAY 4
REVISION
Session 29
PRACTICE PROBLEMS AND REVISION
The University of Sydney
Page 29
DAY 4
REVISION
Session 30
FIRST ASSIGNMENT REVISITED
The University of Sydney
Page 30
DAY 4
REVISION
Session 31
ASSIGNMENT 2 EXPECTATIONS
The University of Sydney
Page 31
Questions?
The University of Sydney
Page 32