THE LAW OF COMMERCIAL CONTRACT
Misrepresentation
(Sweeney & O’Reilly 2nd Ed Chapter 3 pp 56 – 58 &
Chapter 9 p 257)
THE LAW OF COMMERCIAL CONTRACT
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
THE LAW OF COMMERCIAL CONTRACT
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
THE LAW OF COMMERCIAL CONTRACT
C au ses o f actio n fo r m isrep resen tatio n
A ction for
d am ages for to rt
o f d e c e it
(frau d )
A ction for
d am ages for
to rt o f
n e g lig e n c e
c o m m o n la w
m is re p re s e n ta tio n s
A ction for m is le a d in g o r
d e c e p tiv e c o n d u c t
(b reach of T P A s 5 2 ,
Fair T rad in g A ct or
A S IC A ct)
s ta tu to ry
m is re p re s e n ta tio n s
A ction for b re a c h o f
c o n tra c t
c o n tra c t
la w
THE LAW OF COMMERCIAL CONTRACT
Categories of Misrepresentation
 Fraudulent misrepresentation
 Representor knew it to be false or was
reckless as to whether it was true or false
THE LAW OF COMMERCIAL CONTRACT
Fraudulent misrepresentation (deceit)
S te p 1
A false representation
of fact w as m ade (bew are
prom ises, opinions or a
m ere puffery)
S te p 2
The representation w as
intended to (and did)
induce the representee to
act ; (eg, by creating a
contract)
S te p 3
The false representation w as
fraudulent: the representor
knew the statem ent w as
untrue, or w as reckless as to
its truth
 Liability for fraud cannot be excluded
 Remedy for fraudulent misrepresentation is damages.
THE LAW OF COMMERCIAL CONTRACT
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
THE LAW OF COMMERCIAL CONTRACT
Negligent misrepresentation
S te p 1
D id th e
re p re s e n to r o w e
a d u ty o f c a re to
th e re p re s e n te e ?
S te p 2
H a s th e re p re s e n to r
fa ile d to e xe rc is e th e
re q u ire d s ta n d a rd o f
c a re ?
S te p 3
W e re th e re p re s e n te e ’s
lo s s e s c a u s e d b y th e
n e g lig e n c e a n d w e re th e
lo s s e s re a s o n a b ly
fo re s e e a b le ?
 Liability for negligence can be excluded by an
exemption clause
 Remedy for negligence is damages.
THE LAW OF COMMERCIAL CONTRACT
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
THE LAW OF COMMERCIAL CONTRACT
Categories of Misrepresentation
 Misleading & Deceptive Conduct
 Section 52 Trade Practices Act
 No need for fraud or negligence
THE LAW OF COMMERCIAL CONTRACT
Misleading or deceptive conduct
(statutory misrepresentation)
Is th e re p re s e n te e
c o ve re d b y th e T P A ,
A S IC A c t a n d /o r
s ta te le g is la tio n
(e g F T A (V ic ))?
H a s th e re p re s e n te e
c o m m itte d ‘m is le a d in g
o r d e c e p tive
c o n d u c t’a n d w a s th is ‘in
tra d e o r c o m m e rc e ’?
W h a t re m e d ie s a re
a p p ro p ria te u n d e r th e
re le va n t A c t(s )?
 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.
THE LAW OF COMMERCIAL CONTRACT
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
THE LAW OF COMMERCIAL 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
THE LAW OF COMMERCIAL CONTRACT
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
THE LAW OF COMMERCIAL CONTRACT
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
THE LAW OF COMMERCIAL CONTRACT
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)
THE LAW OF COMMERCIAL CONTRACT
Remedies for Misrepresentation
 Recission
 Contract is void ab initio
 Not the same as termination
 Damages
THE LAW OF COMMERCIAL CONTRACT
Duress, Undue Influence,
Unconscionable Conduct and
Mistake
(Sweeney & O’Reilly 1st Ed Chapter 9 pp 219 – 224,
2nd Ed Chapter 9 pp 261 – 266)
THE LAW OF COMMERCIAL CONTRACT
Duress
 A contract entered into due to coercion or
force can be rescinded
 Coercion can be:
 To the person;
 To goods; or
 Economic duress
THE LAW OF COMMERCIAL CONTRACT
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
THE LAW OF COMMERCIAL CONTRACT
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)
THE LAW OF COMMERCIAL CONTRACT
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)
THE LAW OF COMMERCIAL CONTRACT
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
THE LAW OF COMMERCIAL CONTRACT
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
THE LAW OF COMMERCIAL CONTRACT
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.
THE LAW OF COMMERCIAL CONTRACT
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
THE LAW OF COMMERCIAL CONTRACT
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)
THE LAW OF COMMERCIAL CONTRACT
Recission
(Sweeney & O’Reilly 1st Ed Chapter 9 pp 216 – 219,
2nd Ed pp 257 - 261)
THE LAW OF COMMERCIAL CONTRACT
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
THE LAW OF COMMERCIAL CONTRACT
Rescission is available for:
 Misrepresentation
 Unconscionable conduct
 Duress
 Undue influence
 Mistake
THE LAW OF COMMERCIAL CONTRACT
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)
THE LAW OF COMMERCIAL CONTRACT
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
THE LAW OF COMMERCIAL CONTRACT
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)