1. Copyright Guy Harley 2008 1 Revision

2. Copyright Guy Harley 2008 2 Terms  Terms can be  Express  In writing  Oral  Partly in writing and partly oral  Implied  By the Courts  By legislation

3. Copyright Guy Harley 2008 3 Reasonable Bystander Test  Which statements and representations would a reasonable bystander, aware of the circumstances of the case, regard as promissory?  The test is objective  Parties actual intention is irrelevant

4. Copyright Guy Harley 2008 4 Reasonable Bystander Test - Guidelines  Timing of Statement  Was the statement in writing  Did one party have special skill or knowledge  How objectively important is the representation to the whole deal  What words were used

5. Copyright Guy Harley 2008 5 Parol Evidence Rule  Courts presume that written formal contracts that appear to be a complete record of the agreement, contain the whole agreement  Exceptions  Parties did not intend written document to record whole of the agreement  Written document inaccurately records the parties agreement  Terms must be implied to make the agreement workable  Collateral contracts

6. Copyright Guy Harley 2008 6 Terms implied by the Courts Implied as a matter of lawImplied as a matter of fact Past DealingsBusiness efficacyTrade Custom Implied Terms Terms implied by Statute

7. Copyright Guy Harley 2008 7 Exemption Clauses  Courts adopt a 2 step process  Has the exemption clause become a term of the contract?  If so, does it cover the breach in question?

8. Copyright Guy Harley 2008 8 Does the Clause Cover the Breach?  Courts will examine the clause carefully to determine its effect and limit its scope where possible  Generally, the Courts will give effect to the parties intentions as evidenced by the natural and ordinary meaning of the words  There are 3 rules that courts use to limit exemption clauses:  The Contra Preferendum rule  Negligence Clauses  The Four Corners Presumption

9. Copyright Guy Harley 2008 9 Void and Voidable Contracts

10. Copyright Guy Harley 2008 10 Void, Voidable & Unenforcable  Void  Where one or more of essential elements of contract are missing  There is no contract  Voidable  Parties have option to avoid contract  Equitable remedy of rescission  Valid & enforceable until one party rescinds

11. Copyright Guy Harley 2008 11 Void, Voidable & Unenforceable  Unenforceable  Valid contracts  Legislative or procedural requirement not satisfied  E.g. Sale of Land must be in writing (s26 Law of Property Act)

12. Copyright Guy Harley 2008 12 Rescission  Effect  Contract is terminated ab initio (i.e. it is as though there never was a contract)  cancels the contract from the point of termination  Procedure  Innocent party rescinds by giving notice to the other party

13. Copyright Guy Harley 2008 13 Notice of Rescission  Innocent party must give notice of rescission to other party  Notice can be implied from conduct  Academy of Health & Fitness v Power

14. Copyright Guy Harley 2008 14 Rescission  Available for:  Misrepresentation  Undue influence  Unconscionable conduct  Duress

15. Copyright Guy Harley 2008 15 Bars to Rescission  Third Party rights adversely affected  Substantial restitution not possible  Innocent party affirms contract  Party wishing to rescind does not have “clean hands”  Lapse of time

16. Copyright Guy Harley 2008 16 Third Party Rights  Rescission is not permitted if the legal rights of an innocent third party will be adversely affected  For example, where goods have been on sold in good faith and for value to a purchaser  But, rescission will be effective where it occurs before the third party gains an interest  Car & Universal Finance Co v Caldwell

17. Copyright Guy Harley 2008 17 Restitution  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  Alati v Kruger  Brown v Smitt  Not possible where services already supplied pursuant to a contract of service

18. Copyright Guy Harley 2008 18 Affirming the Contract  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

19. Copyright Guy Harley 2008 19 Clean Hands  Rescission will not be permitted if party seeking to rescind has also done something wrong under the contract  E.g.  One party makes misrepresentation  Other party has breached the contract by not carrying out their obligations

20. Copyright Guy Harley 2008 20 Lapse of Time  Lapse of time will not normally deprive innocent party of right to rescind except if long period  Leaf v International Galleries (Graw 12.8.4)

21. Copyright Guy Harley 2008 21 Duress, Undue Influence, Unconscionable Conduct and Mistake

22. Copyright Guy Harley 2008 22 Duress  A contract entered into due to coercion or force can be rescinded  Coercion can be:  To the person;  To goods; or  Economic duress

23. Copyright Guy Harley 2008 23 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 person’s property

24. Copyright Guy Harley 2008 24 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  A lawful threat may be illegitimate  Cockerill v Westpac

25. Copyright Guy Harley 2008 25 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

26. Copyright Guy Harley 2008 26 Undue influence  Presumed in pre-existing special relationships where one party is in a position of trust and confidence  Called a “fiduciary relationship”  Cases  O’Sullivan v Management Agency  Lloyd’s Bank v Bundy

27. Copyright Guy Harley 2008 27 Fiduciary Relationships  Parent & Child  Guardian & ward  Principal & Agent  Trustee & Beneficiary  Doctor & Patient  Lawyer & Client  Religious advisor & Follower  More

28. Copyright Guy Harley 2008 28 Where No Special Relationship  Weaker party must show that there is a relationship of dependence, trust & confidence  Stronger Party exerted undue influence to the extent that the weaker party could not exercise an independent judgment  There must be more than mere reliance or influence  Weaker party must show that the contract would not have been made without the undue influence

29. Copyright Guy Harley 2008 29 Where no Special Relationship  Court will look at:  The equality of the bargain  The weaker party’s ability to make free and independent choices  Domination by one party  Dependency on another  Need for guidance, advice and support  Low intelligence, weak mindedness, illiteracy  Age & Health  Lack of independent financial or legal advice

30. Copyright Guy Harley 2008 30 Rebutting Undue Influence  Party in weaker position made an independent decision of their own free will  No pressure or influence as weaker party encouraged to seek independent advice  Weaker party was paid market price

31. Copyright Guy Harley 2008 31 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 (S&OR p219\261)  Commercial Bank v Amadio (S&OR p61\86)  Elements  Special disability  Absence of any equality between the parties  Disability evident to other party

32. Copyright Guy Harley 2008 32 Mistake  A party cannot get out of a contract because they made a mistake  Exceptions:  Mistake due to other party’s misrepresentation, unconscionable conduct etc.  Common mistake  Mutual mistake  Unilateral mistake  Mistake as to nature of document

33. Copyright Guy Harley 2008 33 Mistake  Mistake at Common Law makes contract void  Mistake at equity makes contract voidable

34. Copyright Guy Harley 2008 34 Common Mistake – Common Law  Both parties make the same mistake  Res Extincta  Subject matter of contract has ceasd to exist  Res Sua  Subject matter of contract already owned by purchaser  Cooper v Phibbs

35. Copyright Guy Harley 2008 35 Common Mistake – Equity  A common misunderstanding  An important but not fundamental mistake  Mistake through no fault of either party  Unconscionable for one party to benefit from mistake  No bar to rescission Solly v Butcher (Graw 11.3.5)

36. Copyright Guy Harley 2008 36 Mutual Mistake Parties are talking about different things Both are mistaken Difficult to work out what parties intended No “meeting of the minds” Raffles v Wichelhaus

37. Copyright Guy Harley 2008 37 Unilateral Mistake - Equity  One party is mistaken as to a fundamental term; and  Other party is aware, or should be aware, of the mistake  Mistaken party will suffer detriment if not allowed to rescind Taylor v Johnson

38. Copyright Guy Harley 2008 38 Unilateral Mistake – Common Law  Mistake as to Identity  If Third Party rights involved, identity must be important  Ingram v Little (Graw 11.5.4)  Mistake as to nature of document  Non est factum

39. Copyright Guy Harley 2008 39 Mistake as to nature of document  Radical difference between what was signed and what party believed they were signing  Mistaken party relied on others for advice because unable to  read document  Understand document  Mistaken party not careless Saunders v Anglia Building Society

40. Copyright Guy Harley 2008 40 Rectification Correction of document that does not accurately record parties’ intention Nobleza v Lampi