Genuine consent

1. Genuine consent • There must be genuine agreement between the parties to a contract as to its nature and scope (consensus ad idem). • If one of the parties has not given genuine consent, then the contract could be either void or voidable depending on what the parties have agreed to.

2. Genuine consent Consent Mistake Misrepresentation Duress Undue influence Unconscionability Fraudulent Innocent Negligent Special relationship No special relationship Against the person Against goods Economic Non est factum Common Unilateral Mutual

3. Absence of consent • Mistake (not discussed in this subject) • Misrepresentation • Duress • Undue influence • Unconscionable conduct

4. Misrepresentation • Statements made before formation of the contract may be terms or pre-contractual representations. • A misrepresentation is a false representation.

5. Misrepresentation • 3 types of misrepresentation: • fraudulent misrepresentation - intention to induce a person to enter into a contract; • innocent misrepresentation – there is a lack of intentional deceit; and • negligent misrepresentation – statement made innocently but carelessly .

6. Misrepresentation • If the representation was made fraudulently, the innocent party may be entitled to recover damages under the tort of deceit. • If the representation was made negligently, the innocent party may be able to recover damages under the tort of negligence.

7. Misrepresentation • Misrepresentation only makes the contract voidable. • In the event of misrepresentation, the innocent party has a right to rescind the contract. • This right will be lost where: • with full knowledge they elect to continue with the contract • the parties cannot be restored to their original positions • a third party has acquired in good faith and for value an interest in the subject matter of the contract • there has been a long delay.

8. Misrepresentation • Where there are only two parties the outcome is no different to that of mistake. • However, where there are three parties involved, the question of the timing of the rescission of the contract becomes important in terms of whether the third party can get title.

9. Inducement • A representation must produce a misunderstanding in the mind of the representee and must be one of the reasons which induced the representee to make the contract.

10. Inducement • To operate as an inducement, the representation must: • be made with the intention that it should be acted upon by the representee; • induce the contract so that the representee has not relied on their own skill and judgement; • be material in the sense that it affected the representee’s judgement; and • be known to the representee, though communication does not have to be made directly with the representee.

11. Fraudulent misrepresentation • There must be an intentional deceit, and the court is only concerned with the belief held by the representor at the time. • There must be a false statement of fact that the representor knew was false or did not believe was true, which it was known would be acted on, and which was acted on. • A contract induced by fraud is voidable

12. Innocent misrepresentation • A misstatement of a material fact, not known to be false, made by one party to another, which induces the other to enter into a contract. • It is distinguished from fraudulent misrepresentation by the lack of intentional deceit and the right to recover damages.

13. Innocent misrepresentation • Common law prevails to the exclusion of equity. • The appropriate remedy depends on whether the representation is a condition or a warranty. • If a condition – sue for damages or for a total failure to perform the contract. • If a warranty – sue for damages only; no order for rescission in equity.

14. Negligent misrepresentation • An innocent but negligent misrepresentation can give rise to an action where a ‘special relationship’ can be shown to exist between the parties. CASE: Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] CASE: Esso Petroleum Co. Ltd v Mardon [1976]

15. Negligent misrepresentation • Guidelines in establishing negligent misrepresentation: • a special relationship exists between parties such that the person providing the information or advice must exercise a duty of care; • subject matter is of a serious or business nature; • person providing the advice realises that the recipient intends to act upon that advice or information; • it was reasonable for recipient to rely on the advice or information; and • damage was suffered by the recipient usually, monetary loss.

16. Statutory modifications • Both Commonwealth (Trade Practices Act 1974 [TPA]) and state and territory consumer protection legislation have impacted on the area of misrepresentations by targeting conduct rather than contractual situations. • For example, relevant sections of the TPA include: • s 52(1): misleading or deceptive conduct; • s 51A: representations as to the future; • s 53: false representations; • s 53A: false representations in relation to land; • s 53B: false representations in relation to employment; • s 55A: misleading conduct regarding services; • s 59: misleading statements about home-operated businesses.

17. Misrepresentation • Most actions for misrepresentation are today brought under the Trade Practices Act, because breach is easier to establish and there is a broader range of remedies.

18. Duress • Duress involves use of threats or violence against a person, their goods or economic interest to force them to enter into a contract against their will. • Lack of voluntary agreement. • It only has to be one of the reasons for a person to enter into a contract and the effect on the contract is that it will be voidable at the option of the injured party. CASE: Barton v Armstrong (1973)

19. Duress • Physical duress • A contract is voidable where a threat to the personal safety or property of a party or their immediate family is a reason that the contract was entered into. CASE: Barton v Armstrong (1974)

20. Duress • Economic duress • Threats to an individual’s property or other more abstract financial interests may render the contract voidable. CASE: North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd (1979)

21. Undue influence • Involves the improper use of a position of influence or power possessed by one person over another in order to induce that other person to act for their benefit. • The doctrine is primarily concerned with gifts but may also apply to contracts. • The gift or contract may be set aside where the parties were in a relationship where one had the power to influence the other in an unacceptable way.

22. Undue influence • Undue influence will be presumed in certain relationships (e.g. doctor and patient, solicitor and client, guardian and child, religious leader and devotee). CASE: Allcard v Skinner (1887) CASE: Johnson v Buttress (1936) • Where there is no pre-existing relationship, the gift/contract may still be set aside if actual undue influence is established.

23. Undue influence • Action based in equity and usual remedy is rescission. • Action must commence within a reasonable time or right to rescission may be lost. CASE: Allcard v Skinner (1887)

24. Types of undue influence • Where a special relationship is presumed to exist: • The defendant stands in an unequal relationship to the plaintiff in a relationship of influence or confidence, e.g. doctor and patient. • Onus of rebutting the presumption lies with the defendant. • Where no special relationship exists: • The plaintiff must prove that the defendantexerted influenceover them. • If undue influence is established, the contract isvoidable.

25. Unconscionable contracts • In its equitable jurisdiction, the court will set aside a contract as unconscionable (unfair) where the defendant has abused their superior bargaining position in their dealings with the plaintiff. CASE: Commercial Bank of Australia v Amadio (1983) • The plaintiff has to establish: • They were in a position of ‘special disadvantage’. CASE: Louth v Diprose (1992) • Which substantially affected their ability to protect themselves; • The defendant knew, or ought to have known, of the plaintiff’s disability and had taken advantage of it; • The actions of the defendant were unconscionable.

26. Unconscionable contracts • Part IVA, ss 51AA – 51AC of the Trade Practices Act 1974 (Clth), prohibits a corporation, acting in trade or commerce, from engaging in conduct which is, in all the circumstances, unconscionable: • Section 51A prohibits conduct that is unconscionable within the meaning of the common law and Amadio’s case.

27. Unconscionable contracts • Section 51AB catches consumer transactions and s 51AB(2) lists a number of guidelines for the court to take into account; • Section 51AC catches unconscionable conduct in business dealings of up to $3 million and s 51AC(3) lists a number of guidelines for the court to take into account in determining what is unconscionable.

28. Unconscionable contracts • The Fair Trading legislation of the States and Territories also prohibits persons or suppliers from engaging in such conduct. CASE: S H Lock (Aust) Ltd v Kennedy (1988) CASE: West v AGC (Advance) Ltd (1985)