8
Vitiating Factors and
Rescission
© Oxford University Press, 2007. All rights reserved.
Undue Influence
• absence of free and deliberate judgment or will
resulting from the improper use of a position of
influence or power
• undue influence is presumed where a special
relationship (of mutual confidence or influence)
exists, eg parent/child, solicitor/client and
doctor/patient
• presumption may be rebutted in certain
circumstances.
Undue Influence cont…
• no automatic presumption in fiduciary relationship
(eg partners) or marital relationship (unless evidence
of dominance can be shown)
• where no special relationship exists, the plaintiff must
prove that the defendant exerted influence over them
• note difference between undue influence and
unconscionability.
Duress
• refers to pressure or compulsion to force a person to
enter into a contract against their will
• target of duress may be family members, their goods
or economic interests
• duress need not be the only motivation to contract,
provided it contributed to the decision to contract.
Economic Duress
• restricted to commercial activities; a form of
commercial pressure forcing the consent of one party
to agree to the conduct dictated by the other
• the pressure must go beyond what the law is prepared
to accept as legitimate business conduct
• conduct that does not amount to duress may still be
actionable as fraud or misrepresentation, undue
influence or unconscionability
Mistake
• defined narrowly; no general right to be released
from a contract on basis of mistake
• does not cover errors of judgment
• does not operate simply because a party later
discovers facts which would have convinced them
not to enter the contract had they known of them.
Mistake cont…
• underlying policy: not to undermine sanctity and
reliability of contracts
• three types: unilateral, common, mutual
• recently relatively few reported cases on mistake.
Parties prefer to present their case as misleading or
deceptive conduct or as unconscionable conduct.
Equitable Doctrine of
Unconscionable Bargains
• underlying policy considerations
• Note the three elements of the Amadio doctrine:
(i) special disability which substantially affects the person’s
ability to protect themselves
(ii) knowledge (actual or constructive) of special disability
(iii) unfair advantage/ unconscionable conduct by stronger party.
Equitable Doctrine of
Unconscionable Bargains cont…
• Note in particular:
- mere inequality of bargaining power in itself is
insufficient
- carefully assess the facts of every situation
- whether weaker party had access to independent
advice is important in determining whether the
agreement is unconscionable.
Equitable Doctrine of
Unconscionable Bargains cont…
• Note the distinction between procedural and
substantive unconscionability
• Amadio essentially focuses on procedure
• Compare statutory unconscionability under s 51AB
and s 51AC TPA.
Equitable Doctrine of
Unconscionable Bargains cont…
Special disability: developments
• Louth v Diprose (1992) 175 CLR 621
• Bridgewater v Leahy (1998) 194 CLR 457
Guarantees by married women:
• Garcia v NAB Ltd (1998) 155 ALR 614.
Equitable Doctrine of
Unconscionable Bargains cont…
Remedies:
• traditional remedy: set aside or rescind the
transaction, normally in its entirety
• however note Justice Deane’s approach in Amadio
towards variation of the terms of the contract in
certain circumstances.
Equitable Doctrine of
Unconscionable Bargains cont…
Note limits of Amadio in the commercial context:
• commercial parties not normally in a position of
special disability
• economic pressure usually the real problem in a
commercial context.
Misrepresentation
Pre-contractual negotiations
(i) mere representations
(non-promissory)
(if false: misrepresentations)
CONTRACT
TERMS:
express/implied
(ii) terms
(promissory)
conditions or
warranties
Exclusion clauses
(iii) collateral contract
Misrepresentation cont ...
Pre-contractual statements may essentially be terms
or mere representations:
• apply reasonable bystander test
• note subtests.
Misrepresentation cont ...
• Note the elements of misrepresentation
- narrow in scope
In particular, note what misrepresentation is NOT:
• honest statements of opinion
• puffs or exaggerated statements
• statements of future intention
• mere silence – unless statement made previously
has become untrue or there is an obligation of full
disclosure during negotiations.
Misrepresentation cont…
• Note relationship between common law misrep.
and misleading or deceptive conduct (s 52 TPA
and state equivalents, the FTA’s)
• s 52 and state equivalents are limited to conduct
‘in trade or commerce’
• therefore old common law rules of misrep. are still
necessary in cases of private sales and noncommercial transactions.
Misrepresentation cont…
Classification: depends on knowledge or state
of mind of person making the statement
• fraudulent
• innocent
• negligent.
Misrepresentation cont…
Remedies:
• very limited range of remedies
• main remedy is rescission – in fact this is the only
contractual remedy available (and it may be lost –
refer to bars to rescission).
Misrepresentation cont…
• damages only available if misrep. is either fraudulent
or negligent (both difficult to prove). In such cases,
damages available in tort (tort of deceit or
negligence), not contract.
• no damages available for innocent misrep.
• compare breach of contract action – innocent party
may terminate contract (for breach of condition) and,
in any event, sue for damages (breach of condition or
warranty).
Misrepresentation cont…
• Remedies summary:
- rescission may be available in all cases (but note the
bars to rescission)
- damages only in tort for fraudulent or negligent
misrep.
- damages are not available at common law for
innocent misrep.
- compare position under TPA.
Rescission
Meaning:
• technically, refers to the restoration of the parties to the
positions they occupied before the transaction because
of the presence of one of the vitiating (avoiding)
factors. Compare remedies for breach of contract.
Historical development:
• common law
• equity more flexible
• courts today apply equitable approach.
Rescission cont…
• Rescission is an equitable remedy and the right to
rescind may be lost (the bars to rescission) where:
- substantial restitution impossible
- affirmation
- intervention of third party rights
- lapse of time (delay)
- executed (completed) contracts in the case of
innocent misrep.
- unconscientious conduct of party seeking relief.