1 LAWS20058 – CLASS NOTES 6 Dr Peter Robinson (2017) LAWS20058 – AUSTRALIAN COMMERCIAL LAW NOTES – MODULE 6 UNENFORCEABLE CONTRACTS and MISLEADING CONDUCT Introduction • Although the 3 elements of a contract (agreement, consideration, and intention to create legal relations) may be present, they can be undermined by extraneous factors that render the contract unenforceable, void or voidable. This module looks at those factors. • Another factor which may affect the enforceability of a contract is the legal capacity of the parties. This topic is covered in Module 11. A. Formalities • Statute law sometimes requires an agreement to be evidenced in writing. • Some agreements are void unless in writing:-  Cheques;  Transfers of shares;  Assignment of copyright;  Consumer credit contracts. • Some contracts are unenforceable unless evidenced by a memorandum in writing:-  Contracts dealing with interests in land (e.g. sale, lease, mortgage or trust); o For contracts for sale of land, see Property Law Act 1974 (Qld), s 59.  Guarantees;  Contracts not to be performed within a year. • Such a memorandum must include:-  the names of the parties;  the subject matter;  the consideration, unless it is a guarantee; and  the signature of the party to be charged with an obligation (or their agent). • The requirement of writing can sometimes operate harshly. • Equity will enforce performance of a contract that lacks the necessary writing if there are sufficient acts of part performance referable to the agreement alleged – called the doctrine of part performance – Watson v Delaney.2 LAWS20058 – CLASS NOTES 6 Dr Peter Robinson (2017) B. Contracts that are illegal or contrary to public policy • Contracts contrary to public policy may be void or illegal.  Types of contract may be declared illegal or void by statute – Joe v Young.  Various types of contract are illegal at common law:- o Contracts to commit a crime or tort; o Immoral contracts of a sexual kind (e.g. prostitution); o Contracts interfering in the administration of justice (e.g. concealing evidence); o Contracts to defraud the tax authorities.  Some contracts are void at common law:- o Contracts to oust (i.e. exclude) the jurisdiction of the courts; - Parties can agree to arbitrate before resorting to courts – Scott v Avery. o You have already learned that terms, and sometimes entire contracts, can be void if they are unreasonable restraints of trade – see Module 4. C. Mistake • Normally, parties are stuck with any mistakes they make in entering into a contract.  The court will not re-write a stupid contract that you’ve entered into. • However, if both parties are involved in a mistaken assumption, this may undermine the apparent agreement reached and render the contract void.  The mistake must be one of fact, not law – Holt v Markham. Common Mistake • This is when both parties make the same mistake. • This is different from the situation where one party mistakenly promises something that is impossible. In that case, the promisor is undertaking responsibility for what is promised, and is liable for the breach – McRae v Commonwealth Disposals Commission. • Common mistake will only render a contract void if it is about something so fundamental that the parties would regard it an essential pre-condition to the existence of a contract.  A common mistake about the existence of the subject matter of the contract is an example – Scott v Coulson (life insurance policy on person already dead).  A common mistake about the nature, value or quality of the consideration is NOT sufficient – Bell v Lever Bros, Leaf v International Galleries. • If the common mistake relates only to the nature, value or quality of the consideration, equity may grant relief by setting aside the agreement on just terms – Solle v Butcher.3 LAWS20058 – CLASS NOTES 6 Dr Peter Robinson (2017) • Equity may also order rectification of a common mistake in a written document, but only to make the written document reflect the actual agreement – Rose v Pin. Mutual Mistake • Mutual mistake is when the parties are at cross-purposes – each is mistaken about what the other party is agreeing to.  Such mistakes may be resolved by the objective test of intention. Courts will uphold the version of the contract that meets the objective (‘reasonable bystander’) test. o This may turn a subjective mutual mistake into an objective unilateral mistake. Unilateral Mistake • When only one party is mistaken, it means that the other party correctly understood the objective terms of the contract.  In that case, the mistaken party is stuck with his contract, unless the other party is aware of his error. • Unilateral mistake arises when one party is mistaken, and the other party is aware of it.  Hartog v Colin & Shields – mistake about sale per pound or per piece.  Petelin v Cullen – mistake about the nature of the document signed. D. Misrepresentation and false, misleading or deceptive conduct Misrepresentation • Contractual agreement may also be undermined if it is induced by misrepresentation.  It must be a misrepresentation of fact and it must be relied on by the other party – Attwood v Small (Buyer relied on own expert, not representations). Innocent Misrepresentation • Equity will allow rescission of a contract (i.e. avoidance) if it was induced by misrepresentation, whether innocent or deliberate. • It must be possible to restore the parties to their original positions (restitutio in integrum)  Phillips v Brooks – contract held voidable only, and it was not avoided in time to recover jewellery already transferred on to another party. Fraudulent Misrepresentation • If the party making the misrepresentation had no belief in its truth, it is fraudulent. • In that case, the innocent party can sue for damages (monetary compensation) for fraud (the tort of deceit) – Derry v Peek.4 LAWS20058 – CLASS NOTES 6 Dr Peter Robinson (2017) Negligent Misrepresentation • An action may also be available in negligence for harm caused by a misrepresentation that is NOT fraudulent, but negligent – Hedley Byrne v Heller and Partners.  This only arises when the person making the representation had a duty to be careful about what he said, which is usually NOT true in contractual negotiations. o So negligent misrepresentation is NOT usually a remedy in contract cases. o It is covered in Module 10 under the tort of negligence. False, Misleading and Deceptive Conduct • The Australian Consumer Law (ACL) is part of the Competition and Consumer Act 2010 (Cth). It also provides remedies for false, misleading and deceptive conduct in trade or commerce, which will often involve misrepresentations.  You will learn more about other part of the ACL in Module 7. • Various provisions in the ACL prohibit false, misleading and/or deceptive conduct:-  A person must not, in trade or commerce, engage in conduct that is misleading or deceptive, or likely to mislead or deceive – s 18(1). o This does not apply to someone in the business of supplying information (e.g. a newspaper) UNLESS the information is in an advertisement or promotion – s 19(1).  A person must not, in trade or commerce, in connection with the supply of goods or services (or the promotion of such supply or use) make false or misleading representations about things listed in s 29. o The list includes things such as the origin, quality, characteristics, benefits or price of goods or services, their approvals or affiliations and contractual terms. - ACCC v Dell Computer Pty Ltd – The price did not include a compulsory delivery charge. - Nationwide News Pty Ltd v Australian Competition and Consumer Commission – Mobile phone advertised as ‘free’, but there was a connection fee, delivery charge, security deposit and 15 compulsory monthly payments. - Hartnell v Sharp Corporation of Australia Pty Ltd – Microwave falsely advertised as having been tested by the Standards Association of Australia. o Falsely offering gifts, prizes or other free items in connection with supplies is specifically prohibited by s 32.5 LAWS20058 – CLASS NOTES 6 Dr Peter Robinson (2017)  A person must not, in trade or commerce, make certain types of false or misleading representations in relation to a sale of land – s 30. o Given v Pryer – Advertisement for vacant land showed houses on land and said ‘wonderful place to live’, but there were severe restrictions on building houses.  A person must not, in trade or commerce, engage in misleading conduct as to the nature, characteristics, suitability or quantity of any services – s 34.  A person must not, in trade or commerce, engage in misleading conduct as to the nature, manufacturing process, characteristics, suitability or quantity of goods – s 33.  A person must not, in trade or commerce, make a false or misleading representation about a business activity that the person promotes as able to be carried on at a person’s place of residence – s 37.  A person must not, in trade or commerce, advertise goods or services at a specified price if it has reasonable grounds for believing it will not be able to provide them in reasonable quantities – s 35. o This is called bait advertising. • S 18 is the most general provision, and it can apply to any of the situations where the other more specific provisions would apply, so we will concentrate on it. • S 18 has 3 elements:-  conduct by a person;  in trade or commerce;  which is, or is likely to be, misleading or deceptive. • ‘Conduct’ includes spoken or written representations, or possibly even the failure to say something – Collins Marrickville Pty Ltd v Henjo Investments Pty Ltd. • The requirement for ‘trade or commerce’ limits the provisions to business contexts – Concrete Constructions (NSW) Pty Ltd v Nelson; Bevanere v Lubidineuse. • A common issue under s 18 is identifying the relevant section of the public that is likely to be, or actually is, misled or deceived.  It must be a section of the community likely to be affected by the conduct, whose members are acting reasonably to care for their own interests – Parkdale Custom Built Furniture Ltd v Paxu Pty Ltd, per Gibbs CJ (High Court).  However, the section of the public may have a ‘reasonable’ level of gullibility. • Having identified the relevant section of the community, it necessary to consider how the conduct would affect its various members with different abilities, perceptions and6 LAWS20058 – CLASS NOTES 6 Dr Peter Robinson (2017) backgrounds, and show that a significant number of those members were at least likely to be misled or deceived – Taco Co. of Australia v Taco Bell Pty Ltd.  Evidence that one such person was actually misled or deceived would be persuasive.  However, it is not necessary that any particular person was misled or deceived, so long as there was a real, and not remote, chance of that happening.  Conduct is not misleading simply because it confuses, without leading to error – McWilliams Wines P/L v McDonald’s System of Australia P/L. • A statement of opinion will be false, misleading and deceptive if the person expressing the opinion does NOT actually hold that opinion. • If a statement is about the future, it will be misleading if the person making it did not have reasonable grounds for making it – s 4(1). • Actions for false, misleading or deceptive conduct may be preferred alternatives to actions based on misrepresentation because:-  There is no need to prove intent or a wrongful state of mind;  Liability cannot be excluded by an exclusion clause in a contract; o This is because the misleading conduct precedes and induces the contract with the exclusion clause in it – Clark Equipment Australia Ltd v Covcat Pty Ltd.  The range of remedies is wider, including damages – see below. E. Pressure, dominance and influence Duress • An agreement, and the intention to create legal relations, may be undermined if the agreement is induced by undue pressure, known as duress. • Duress occurs when a person is induced to enter into a contract (or to make a payment) by actual or threatened violence. Such contracts (and payments) are voidable. • Normally, economic pressure is NOT enough. However, threatening to breach an existing legal obligation to put pressure on another party may be economic duress – North Ocean Shipping Co. Ltd v Hyundai Construction Co. Ltd. Unconscionable Conduct • Contracts may be held unconscionable if a party improperly exploits another party’s special disadvantage – Commercial Bank of Australia v Amadio. • The special disadvantage may arise out of illness, ignorance, impaired faculties, inexperience or financial need.7 LAWS20058 – CLASS NOTES 6 Dr Peter Robinson (2017) o It does not arise simply because of an inequality of bargaining power – ACCC v C.G. Berbatis Holdings Pty Ltd. • Under the general law, unconscionable conduct would allow avoidance of the contract. • There is also a provision in the ACL.  A person must not, in trade or commerce, engage in conduct that is unconscionable under the general (i.e. unwritten, judge-made) law – ACL, s 20. o This merely extends statutory remedies (see below) to the general law wrong.  The ACL may extend unconscionable conduct to situations not within the general law involving supply of goods or services in trade or commerce – ss 21-22. o These sections refer to a number of relevant factors to consider:- - The relative strengths of the bargaining positions; - Whether the consumer was required to comply with conditions that were not reasonably necessary to protect the corporation’s legitimate interests; - Whether the consumer could understand any relevant documents; - Whether any undue influence or pressure or unfair tactics were employed; - The amount for which the consumer could have obtained the goods or services from another source. o This list of relevant factors may allow a court to extend the general law concept of unconscionable conduct – ACCC v Simply No-Knead (Franchising) Pty Ltd. Remedies for False, Misleading, Deceptive or Unconscionable Conduct • A person who suffers loss as a result of a contravention of the ACL or CCA can sue for damages (s 236) or ancillary orders such as rescission or variation of a contract (s 243).  A person may also apply for an injunction to stop or prevent breaches – ss 232-5. • There are also pecuniary penalties (i.e. fines) for certain breaches of the ACL and CCA. Undue Influence • Undue influence occurs when a person abuses a position of trust and confidence to induce another to enter into a contract that is manifestly disadvantageous to the weaker party. • Undue influence is presumed in some relationships with a dominant party. • Examples of such relationships:-  Parent and child;  Trustee and beneficiary;  Doctor and patient;  Solicitor and client;8 LAWS20058 – CLASS NOTES 6 Dr Peter Robinson (2017)  Guardian and ward;  Religious adviser and devotee. • If undue influence is presumed, it is up to the dominant party to prove that he/she did NOT use their position to obtain an advantage. • Otherwise, a weaker party may prove that a relationship of trust existed that was exploited by the dominant party – Tasker v Algar.