Misrepresentation

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• Misrepresentation
• (Sweeney OReilly 2nd Ed Chapter 3 pp 56 58
• Chapter 9 p 257)

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• History
• 1880s 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

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• History
• 1970s Statutory Reform
• S52 Trade Practices Act s11 Fair Trading Act
• Removed distinction between fraudulent, negligent
  and innocent misrepresentation
• Built upon previous law regarding
  misrepresentation

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• Categories of Misrepresentation
• Fraudulent misrepresentation
• Representor knew it to be false or was reckless
  as to whether it was true or false

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Fraudulent misrepresentation (deceit)

• Liability for fraud cannot be excluded
• Remedy for fraudulent misrepresentation is
  damages.

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• 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

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Negligent misrepresentation

• Liability for negligence can be excluded by an
  exemption clause
• Remedy for negligence is damages.

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• 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

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• Categories of Misrepresentation
• Misleading Deceptive Conduct
• Section 52 Trade Practices Act
• No need for fraud or negligence

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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.

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• 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

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• Statement was false
• Silence will not normally suffice
• Half truths
• Re Hoffman ex p Worrell v Scilling (noted SOR
  p39\59)
• Krakowski v Eurolynx (note - SOR p40\60)
• Altered circumstances
• Lockhart v Osman (SOR p40\60)
• Misrepresentation can be made by conduct

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• 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 (SOR
  p39\59)
• The existence of an opinion can be a fact
• Sola Optical v Mills (1987) 168 CLR 628

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• 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 (SOR p41\61)
• But is sufficient if communicated to a third
  party with the intention that it would be
  communicated to the representee

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• 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 (SOR p40\60)
• Representee is not required to investigate
• Redgrave v Hurd (SOR p41\61)

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• Remedies for Misrepresentation
• Recission
• Contract is void ab initio
• Not the same as termination
• Damages

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• Duress, Undue Influence, Unconscionable Conduct
  and Mistake
• (Sweeney OReilly 1st Ed Chapter 9 pp 219
  224, 2nd Ed Chapter 9 pp 261 266)

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• Duress
• A contract entered into due to coercion or force
  can be rescinded
• Coercion can be
• To the person
• To goods or
• Economic duress

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• 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 persons property

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• 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 (SOR p220\263)

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• 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 (SOR p263)
• Presumed in special relationships and where one
  party is in a position of dominance or confidence
• OSullivan v Management Agency (SOR p221\264)
• Lloyds Bank v Bundy (SOR p222\265)

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• 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 partys ability to make free and
  independent choices
• Whether the weaker party received independent
  advice

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• 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 (SOR p219\261)
• Commercial Bank v Amadio (SOR p61\86)
• Elements
• Special disability
• Absence of any equality between the parties
• Disability evident to other party

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• 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.

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• Mistake
• A party cannot get out of a contract because they
  made a mistake
• Exceptions
• Mistake due to other partys misrepresentation,
  unconscionable conduct etc.
• Common mistake
• Unilateral mistake

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• 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 (SO p223)

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• Recission
• (Sweeney OReilly 1st Ed Chapter 9 pp 216
  219, 2nd Ed pp 257 - 261)

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• 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

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• Rescission is available for
• Misrepresentation
• Unconscionable conduct
• Duress
• Undue influence
• Mistake

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• Rescission (cont.)
• Innocent party must give notice of rescission to
  other party
• Notice can be implied from conduct
• Academy of Health Fitness v Power (SOR
  p218\260)

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• 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

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• 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 (SOR
  p218\260)