Melbourne University Law Students Society

1
Melbourne University Law Students
Society Student Tutorial Service Contracts 730-21
5 (LLB) 733-613 (JD) Julia Wang
Sponsoring Partners Clayton Utz Mallesons
Stephen Jaques Leo Cussen Institute
2
DISCLAIMER These tutorials and the notes are
designed to assist students in their learning.
The tutorials and the notes are not a substitute
for the course material, nor should they be
relied upon as representative of the subject
matter of the course. Neither the Melbourne
University Law Students Society nor the student
tutor of these tutorials will take responsibility
for any consequences flowing from the use of the
material provided in the tutorials or in the
notes.
3
Contact Details

• Julia Wang
• 3rd Year LLB/BSc student
• julia.r.wang_at_gmail.com
• 0401 336 547

4
Outline

• Mistake
• Duress
• Statutory duress
• Undue influence

5
ILLEGALITY
Misrepresentation
Misleading or deceptive conduct
Misinformation
Mistake
VITIATING FACTORS
Duress
UNFAIR CONDUCT
Undue influence
Third party unconscionability (Garcia)
Interference with free choice
Unconscionable dealing
Statutory unconscionability
6
Mistake

• Situation in which the subjective understanding
  of one or both parties to a contract departs from
  the objective interpretation
• Operative mistake serious mistake
• Types
• Common mistake
• Both parties make the same mistake
• Unilateral mistake
• Mistake made by one party only
• Mutual mistake
• Both parties make different mistakes

7
Courts Reluctance to Rescind on the Basis of
Mistake

• Once ... the parties, whatever their inmost
  states of mind, have to all outward appearances
  agreed with sufficient certainty in the same
  terms on the same subject matter, then the
  contract is good unless ... set aside for failure
  of some condition on which the existence of the
  contract depends, or for fraud, or on some
  equitable ground. Neither party can rely on his
  own mistake to say it was a nullity from the
  beginning. (Lord Denning in Solle v Butcher)

8
Common Mistake Common Law

• High Court authority
• McRae (1951)
• A common mistake as to the existence of the
  subject matter of a contract does not render the
  contract void where the party arguing mistake
• Promised the existence of the subject matter or
• Entertained the mistaken belief without any
  reasonable ground and deliberately induced that
  belief in the other party
• Svanosio (1956)
• Once conveyance has taken place in sale of land
  contracts, rescission will not be available for
  common mistake apart from exceptional cases
  where there has been a total failure of
  consideration.
• Eg, where the purchaser and not the vendor is the
  owner of the land, so that the purchaser is
  really paying for his own property

9
Common Mistake Common Law (Cont.)

• Great Peace Shipping test (UK)
• (i) Common assumption as to the existence of a
  state of affairs and
• (ii) Neither party has vouched for the existence
  of that state of affairs and
• (iii) Non-existence of state of affairs is not
  the fault of either party and
• (iv) Non-existence of state of affairs renders
  performance of contract impossible and
• (v) State of affairs may be
• The existence, or a vital attribute, of the
  consideration to be provided or
• Circumstances which must subsist if performance
  of the contractual adventure is to be possible
• Approved in Australian Estates (Qld SC), but yet
  to be considered by HCA
• Some commentators regard the test as inconsistent
  with McRae and Svanosio

10
Common Mistake Equity

• UK authority
• Solle (Lord Denning)
• Common mistake can render a contract voidable in
  equity if sufficiently serious
• Great Peace Shipping
• Overruled Solle no jurisdiction in equity to set
  aside a contract for common mistake if it is
  valid at common law
• Australian authority
• Australian Estates (Qld SC) followed Great
  Shipping
• Svanosio (HCA) unclear
• It is difficult to conceive circumstances in
  which equity could give relief by setting aside
  the contract unless there has been fraud or
  misrepresentation or a condition can be found
  express or implied in the contract. (Dixon CJ
  and Fullagar J, 196)

11
Unilateral Mistake Common Law

• General rule no relief for unilateral mistake if
  there is an objective appearance of agreement
  (Taylor)
• Exceptions
• Non est factum (mistake as to nature of contract)
• Mistaken identity

12
Unilateral Mistake (CL) Non Est Factum

• Onus on party arguing non est factum to show
• S/he believed the document was radically
  different from what it was in fact and
• Failure to understand the document was not due to
  carelessness
• This second element only necessary where other
  party is innocent
• Not necessary where other party knew or had
  reason to suspect that transaction was executed
  under some misapprehension
• Available to those that cannot read because of
  blindness or illiteracy, or those who, though no
  fault of their own, are unable to have any
  understanding of the purport of a contractual
  document (Petelin)

13
Unilateral Mistake (CL) Mistaken Identity

• Need a mistake as to identity as opposed to
  attributes (Papas)
• Example creditworthiness is an attribute, not an
  issue of identity (Papas)
• A mistake as to the creditworthiness of the
  other party, or a mistake which arises from a
  representation about creditworthiness linked to
  identity, will not usually render a contract
  void.
• There is a rebuttable presumption that each party
  intends to deal with the person in front of him
  (Papas).
•  

14
Unilateral Mistake Equity

• a party who entered into a written contract
  under a serious mistake about its contents will
  be entitled in equity to an order rescinding the
  contract if the other party is aware that
  circumstances exist which indicate that mistake,
  and deliberately sets out to ensure that the
  first party does not become aware of the
  mistake. (Taylor, Mason ACJ, Murphy and Deane
  JJ)
• Basis for rescission enforcement of contract is
  unconscionable

15
Is there a serious mistake?
Is one party or are both parties mistaken?
Both Parties
One Party
The mistake meets the requirements in Australian
Estates(?)

• Common Law
• Non est factum Petelin
• Intended to contract with a particular
  individual only Papas

• Otherwise, contract is valid
• This includes where one party made an implied
  promise about the existence of the subject matter
  (McRae)
• Rectification may be available

Equity Makes serious mistake and other party
deliberately ensures s/he does not became aware
of it Taylor
Probably no remedy in equity Solle v Butcher no
longer followed
16
(No Transcript)
17
Mistake Compared with Related Concepts
18
(No Transcript)
19
Hypothetical Sheik Ahmed
20
Hypothetical Sheik Ahmed

• Rod River contract
• Mutual mistake
• Contract void at common law if it is objectively
  not possible to assign a meaning to what the
  parties had agreed (Goldsborough Mort)
• (Facts unclear on this point)
• Unilateral mistake
• Presuming that contract document provides that
  subject matter Rod River (not Red Rover), Mr Ho
  is acting under a unilateral mistake
• Equity apply Taylor principles

21
Hypothetical Sheik Ahmed

• a party who entered into a written contract
  under a serious mistake about its contents will
  be entitled in equity to an order rescinding the
  contract if the other party is aware that
  circumstances exist which indicate that mistake,
  and deliberately sets out to ensure that the
  first party does not become aware of the mistake
  (Taylor)
• Written contract? Yes
• Serious mistake about contents? Yes
• Sheik Ahmed aware of circumstances indicating Mr
  Hos mistake? Arguably yes
• Circumstances Mr Ho was willing to pay much
  more than what Rod River was actually worth
• Sheik Ahmed deliberately set out to ensure that
  Mr Ho did not become aware of his mistake? Not on
  the given facts
• Given facts do not suggest that Sheik Ahmed
  avoided discussing the horse with Mr Ho, etc
  (unlike in Taylor)
• More facts needed

22
Hypothetical Sheik Ahmed

• Fleetfoot contract
• Unilateral mistake mistaken identity
• No remedy in equity, as rescission would defeat
  the interests of innocent third party (Gold Coast
  stable)
• Note strong factual similarity with Papas
• Mistake must be as to Greenbacks identity as
  opposed to his attributes (Papas)
• Like the car dealer in Papas, Sheik Ahmed was
  willing to sell Fleetfoot to any buyer that could
  pay the desired price
• Mistake as to Greenbacks trustworthiness /
  creditworthiness, rather than his identity
• Rebuttable presumption that each party intends to
  deal with the person in front of him (Papas)
• Fact that Sheik Ahmed didnt undertake usual
  background checks may suggest that he only
  intended to deal with Greenbacks as presented in
  his impressive written credentials

23
Hypothetical Sheik Ahmed

• Vanquished contract
• Common mistake (re existence of subject matter
  of contract)
• Simple answer Sale of Goods Act (Vic) s 1a
• Where goods have perished at the time the
  contract is made, the contract is void
• More complex answer
• Common mistake at common law
• Consider McRae, and Great Peace Shipping test
• Distinguish McRae
• Different side arguing for contract to be made
  void (McRae vendor in this case purchaser)

24
Hypothetical Sheik Ahmed

• Common assumption as to the existence of a state
  of affairs and
• Neither party has vouched for the existence of
  that state of affairs and
• Non-existence of state of affairs is not the
  fault of either party and
• Non-existence of state of affairs renders
  performance of contract impossible and
• State of affairs may be
• The existence, or a vital attribute, of the
  consideration to be provided or
• Circumstances which must subsist if performance
  of the contractual adventure is to be possible

25
ILLEGALITY
Misrepresentation
Misleading or deceptive conduct
Misinformation
Mistake
VITIATING FACTORS
Duress
UNFAIR CONDUCT
Undue influence
Third party unconscionability (Garcia)
Interference with free choice
Unconscionable dealing
Statutory unconscionability
26
Illegitimate pressure (contract made against will)
Duress
Improper use of ascendancy over dependant party
(contract made willingly)
Undue influence
Taking advantage of vulnerable guarantor
Garcia principle third party unconscionability
Unconscionable dealing, statutory
unconscionability
Taking advantage of special disability
27
Duress Elements

• Illegitimate pressure
• Causation
• Remedy

28
Duress Illegitimate Pressure

• Definition
• Pressure will be illegitimate if it consists of
  unlawful threats or amounts to unconscionable
  conduct. (Crescendo, McHugh JA)
• Conduct / threat assessed objectively (Hawker
  Pacific)
• Conduct / threat need not be express can be
  conveyed by the circumstances (Hawker Pacific)
• Examples
• Threats of physical injury or death (Barton)
• Detention of persons goods / property (Hawker
  Pacific)
• (Sometimes) A threat to withhold performance
  unless the other party agrees to a contractual
  variation (Sundell)

29
Duress Causation

• Illegitimate pressure need only be one of the
  reasons for entry into the contract (Barton
  Crescendo)
• Once illegitimacy is established, there is a
  rebuttable presumption of causation (Crescendo)
• Eg, where death threats are made, it can be only
  in the most unusual circumstances that there can
  be any doubt of inducement (Barton)

30
Duress Remedy

• A contract executed under duress is voidable
  rather than void (Crescendo).

31
Statutory Duress

• s 53A(2) A corporation shall not use physical
  force or undue harassment or coercion in
  connection with the sale or grant ... of ... an
  interest in land
• s 60 A corporation shall not use physical force
  or undue harassment or coercion in connection
  with the supply ... of goods or services to a
  consumer
• s 4B(1) Person acquiring goods / services
  qualifies as a consumer if
• Goods / services do not exceed 40,000
• Goods / services of a kind ordinary acquired for
  personal, domestic or household use or
  consumption
• Goods not acquired for purpose of resupply

32
Statutory Duress (Cont.)

• Harassment
• involves applying repeated pressure to a
  consumer who is under no pre-existing obligation
  to acquire goods or services (ACCC v Lux)
• Coercion
• connotation of a force or compulsion or threats
  of force or compulsion negating choice of freedom
  to act (ACCC v Lux)

33
Undue Influence

• the improper exercise ... of an ascendancy or
  domination over another party (Johnson, Dixon J)
• Actual undue influence
• Presumed undue influence
• Causation
• Remedy

34
(No Transcript)
35
(1) Actual Undue Influence

• facts must be proved showing that the
  transaction was the outcome of such an actual
  influence over the mind of the weaker party
  that it cannot be considered his free act
  (Johnson, Dixon J 134)
• Rare

36
(2A) Presumed Undue Influence Established
Categories

• Parent and child
• Guardian and ward
• Solicitor and client
• Trustee and beneficiary
• Doctor and patient
• Religious advisor and disciple

37
(2B) Presumed Undue Influence R/Ships of Trust
and Confidence

• Undue influence presumed where there is r/ship of
  trust and confidence such that one party
  occupies a position naturally involving an
  ascendancy or influence over the other
  (Johnson)
• Johnson suggests that the personal
  characteristics of the weaker party are
  particularly relevant to whether requisite r/ship
  exists

38
Undue Influence Causation

• Presumed undue influence ? onus on ascendant
  party to rebut presumption
• Gifts
• Donee must show that the gift was the
  independent and well-understood act of a man in a
  position to exercise a free judgment based on
  information as full as that of the donee
  (Johnson, Dixon J)
• Relevance of independent advice
• Adequacy of consideration
• When the transaction is not one of gift but of
  purchase or other contract, adequacy of
  consideration becomes material. (Johnson, Dixon
  J)

39
Undue Influence Remedy

• A contract executed under undue influence is
  voidable rather than void.