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General principles of contract law

Consumer topics

Avoidance

Misleading conductMistakeDuressUndue InfluenceUnconscionable conductUnfair termsIllegality

Misleading or Deceptive Conduct

Pre-contractual misrepresentations may provide contractual remedies at common law or statutory remedies pursuant to the Competition and Consumer Act 2010 (Cth) (previously the Trade Practices Act 1974 (Cth) (TPA)). The latter is more commonly used as it operates in a wider range of circumstances and generally provides better remedies.

The statutory prohibition of misleading and deceptive conduct can now be found in s 18 of the Australian Consumer Law (contained in schedule 2 of the Competition and Consumer Act 2010 (Cth)) (previously s 52 of the TPA). Section 18 provides:

18 Misleading or deceptive conduct
(1) A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

The reference to 'trade or commerce' excludes purely private sales but captures most commercial activity. Where a breach of section 18 is established a range of remedies are available including damages and contractual avoidance or variation.

Common law misrepresentation overlaps with the statutory misleading conduct provisions and in practice is only relevant where the CCA does not apply; that is, in non-commercial contexts. An actionable pre-contractual misrepresentation occurs where a party makes a 'false representation' (orally, in writing or by conduct), the representation is one of fact (rather than a statement of opinion of law or a prediction about the future), it must be made to the other contracting party and it must induce the contract. Where established the key remedy is rescission (generally damages are not available unless the misrepresentation constitutes a tort - that is, it is also fraudulent or negligent - in which case tortious (but not contractual) damages may be available). Even where misrepresentation is established there are some limits on rescission - most significantly, if restitution is not possible the right to rescind will be lost.

 

Mistake

Mistake is a complex area of contract law. As a general rule, being mistaken about some aspect of a contract will not provide a party with a right to escape contractual obligations - even if that mistake is fundamental. There are three forms of mistake that may provide contractual remedies in limited circumstances; common mistake, mutual mistake, unilateral mistake and non est factum.

  • A common mistake occurs when both parties are mistaken about the same thing (eg, the authenticity of a piece of art); it is very rare for a common mistake to give rise to remedies at common law, although in equity remedies of rescission or rectification will sometimes be available.
  • A mutual mistake occurs when both parties are mistaken but about different things; this has arisen rarely in practice and the legal position is unclear - often where such mistakes exists the agreement might be too vague or uncertain to be enforceable without the need to rely on mistake as a separate cause of action.
  • Unilateral mistake is more common; it occurs when one party is mistaken about some aspect of the contract but the other is not. It is rare for the common law to provide a remedy for unilateral mistake, but equity will intervene more frequently - equity does, however, require some improper conduct on the part of the unmistaken party whereby that party seeks to prevent the other becoming aware of the mistaken. Often where this is the case there will be some misleading conduct involved which will provide separate - and superior - remedies. The relevant remedy where an actionable mistake exists is rescission or rectification.
  • Non est factum occurs rarely and is established where a party is mistaken about the nature of the document they are signing - essentially that, through no fault or neglect of their own they were unable to understand the meaning or the significance of the document they were signing.

 

 

Duress

Where duress is established the common law permits the victim to escape their contractual obligations by rendering the contract voidable. To be established one of the contracting parties must exert 'illegitimate' pressure on the weaker party which induces the weaker party to enter into the contract. Duress might relate to the person involved (eg, threatening to kill them if they do not enter into the contract), to the property of the other person (eg, threatening to burn down their house if they do not enter the contract) or may take the form of 'economic' duress. Economic duress might exist, for example, where the dominant party threatens not to perform a contract - although not all such threats will constitute duress - in particular, if other options were available to the weaker party (purchasing the product elsewhere, seeking legal remedies) duress will not be established.

Statute now provides remedies for duress in limited cases. In relation to consumer contracts s 50 of the Australian Consumer Law prohibits corporations using 'physical force or undue harassment or coercion' in connection with the supply (or possible supply) of goods or services - or payment of goods or services.

 

Undue Influence

Undue influence, where established, will also render a contract voidable. It occurs when there is an inequality of power between the contracting parties which results in the weaker party entering into a contract with the dominant party. Not all such transactions will result in a remedy - but where the influence that exists between the parties can be classified as 'undue' the weaker party will have the choice of rescinding the contract.

Undue influence may take two forms; express undue influence (where the dominant party acts in such a way as to effectively deprive the other of their free will - this overlaps with duress) and presumed undue influence which occurs where the dominant party holds a position of trust or confidence over the weaker party (such as solicitor and client - in such a case it will be presumed that the influence that existed between them when entering the contract was 'undue' unless the dominant party can prove otherwise)

 

Unconscionable Conduct

Unconscionable conduct also deals with transactions between dominant and weaker parties; it therefore overlaps with duress and undue influence. Unconscionable conduct is prohibited both in equity and, more recently, by statute.

Equity intervenes where one party has taken advantage of a 'special disability' (most commonly age, illiteracy, lack of education or a combination of factors) held by the other. The resulting transaction must normally also be harsh and oppressive to the weaker party. Where established the weaker party may choose to avoid the transaction.

The Australian Consumer Law introduced nationally consistent prohibitions on unconscionable conduct (Part 2-2 of the ACL). The first of these prohibitions entrenches into statute the equitable doctrine of unconscionable conduct, thereby extending the range of remedies available to parties affected by unconscionable conduct. The second prohibition extends the concept of unconscionability beyond that recognized in equity and can be relied upon by all persons, other than listed corporations, who acquire or supply goods or services in trade or commerce.  It is not intended to be ‘limited by the unwritten law relating to unconscionable conduct’ and relevant factors extend beyond 'consideration of the circumstances relating to formation of the contract' to the terms of the contract themselves (substantive unconscionable conduct). Section 22 sets out a range of factors a court may consider when determining whether conduct is unconscionable. 

 

Unfair Terms

In 2011 the Australian Consumer Law introduced a national prohibition on unfair terms in consumer contracts. The unfair terms legislation applies only to standard form consumer contracts, with consumer contracts being narrowly defined as an acquisition of goods, services or interests in land which are wholly or predominantly for personal, domestic or household use or consumption.  Where a term is found to be ‘unfair’ (and the legislation provides some guidance as to what is required to find that a term is unfair), that term will be void. 

Note: the ACCC recently (March 2013) released a review of unfair terms

 

Illegality and Public Policy

Illegality is a highly complex area of contract law. It deals with both criminal conduct, conduct prohibited by statute (even if not criminal) and conduct regarded as contrary to public policy, such as contracts prejudicing the status of marriage. In some cases it will be simple to determine whether or not an illegal contract exists and will be rendered void; for example, a contract whereby A agrees to pay B $1m if B kills C will be clearly be considered illegal and void. In other cases it will be more difficult. For example, will a transport contract be rendered illegal if the car used in the transport speeds while on its journey?

Where conduct is classified as illegal or contrary to public policy it is generally held to be unenforceable; there are, however, some exceptions to that rule and, in some cases, it may be possible to sever the offending terms and enforce the remainder of the contract. In some cases a contract tainted by incidental illegality might be considered unenforceable rather than void so that proprietary interests might pass notwithstanding the unlawful conduct.

 

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