First Class Law Tutor

Contract law II

MISLEADING AND DECEPTIVE CONDUCT

It is provided in s 18 of the Australian Consumer Law that:

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

A party who recovers damages for misleading conduct does so under s 236 (compensation for
actual loss or damage), s 237 (discretionary power to vary contract or compensate based on
damage likely to be suffered; to be read in combination with s 243) rather than s 18, which
does not create liability. Where a party contravenes s 18, the court may give:
 Injunctions (s 232)
 Damages: The measure of loss or damage here is generally the same as it is in
contract law or tort law. According to section 82(1B) of the CCA, if a victim
contributed to the loss or damage that they suffered, then the court can reduce the
amount of damages that they are awarded, in a similar fashion to the reduction of
damages in a negligence claim if the plaintiff is guilty of contributory negligence.
However, if the person engaging in the conduct intended to mislead or deceive, or was
fraudulent in their conduct, then the courts cannot reduce the damages. There is a
limitation period of six years on actions for damages, according to section 236(2).
 Orders: see eg section 87

1. Trade or commerce limitation

Misleading conduct which induces a party to enter a contract in a non-commercial context is
not covered by the act and remedies under the act cannot be obtained. The meaning behind
those words was discussed in Concrete Constructions (NSW) Pty Ltd v Nelson:
 "The phrase 'in trade or commerce' in s 52 [under former Trade Practices Act]
has a restrictive operation. What the section is concerned with is the conduct
of a corporation towards persons, be they consumers or not, with whom it...has
or may have dealings in the course of those activities or transactions which, of
their nature, bear a trading or commercial character. Such conduct includes, of
course, promotional activities in relation to, or for the purposes of, the supply
of goods or services to actual or potential consumers, be they identified
persons or merely an unidentifiable section of the public."
In O'Brien v Smolongov, the court held that private sales of property between individuals is
not considered a business activity:
 Facts: D subdivides and sells land. Representations to P. P buys without inspecting.
 Issues: Alleged false or misleading statements concerning land - Action against
individuals - Alleged statements made in course of telephone conversation following
advertisement - Subsequent conversation at appellants' home - Whether statements
made "in trade or commerce" - Consideration of what constitutes conduct "in trade or
commerce" for purposes of s.53A
 Held:
o The land itself was not used for any business activity: it wasn’t used for
farming or grazing.
o Use of newspaper advertisements and use of telephone for conducting
negotiations not of itself something done in trade or commerce.
Note, if the property is to be used for business activity, it will be covered by the act.

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2. What constitutes misleading conduct?

In order for conduct to be considered 'misleading', it must have induced a false assumption in
the other party:

Can silence constitute misleading conduct?

Discussed in Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd:
 Silence may constitute deceptive conduct where there is a duty to disclose or
where the circumstances give rise to a reasonable expectation of disclosure.
 A Plaintiff must show that he relied on the misleading conduct. However, the
misleading conduct only has to be one of the factors in the reliance.
 Exclusion clauses such as disclaimers or entire agreement clauses, do not
protect one against the statutory laws regarding misleading conduct
Non-disclosure also discussed in Miller v BMW Australia Finance:
Facts: a borrower, Consolidated Timber Holdings, which engaged Miller &
Associates Insurance Broking, to assist it in its application for an insurance premium
funding loan from BMW Australia Finance Limited. Miller supplied BMW with
documentation in support of Consolidated's application, including a memorandum and
a certificate of insurance about the underlying policy purchased from HIH General
Insurance. Cancellable policies constitute a form of security for lenders, as they allow
a lender to cancel the policy and recover the unused premium in the event of default
by a borrower. The relevant policy here was neither assignable nor cancellable.

Issue: BMW claimed that Miller had engaged in misleading and deceptive conduct:

 the memorandum and certificate of insurance conveyed the misrepresentation that the
policy covered property and was assignable and cancellable; or alternatively,
 Miller did not disclose to BMW that the policy was neither assignable nor cancellable.

Held: The High Court found unanimously for Miller on both of the arguments above. The
court endorsed the concept of 'a reasonable expectation of disclosure', suggesting that unless
the circumstances give rise to the reasonable expectation that if a relevant fact exists, it would
be disclosed, mere silence will not generally support the inference that the fact does not exist.

In deciding whether a reasonable expectation existed, regard was not to be had to 'antecedent
erroneous assumptions or beliefs or high moral expectations' held by one party of the other,
but rather, the nature of the parties and the character of the transaction. The majority viewed
the parties to be 'commercially sophisticated', characterising BMW as 'an experienced
premium lender'. Chief Justice French and Justice Kiefel echoed such sentiments, and
concluded that in the context of commercial negotiations s 52:

...does not impose on a party an obligation to volunteer information in order to avoid the
consequences of the careless disregard, for its own interests, of another party of equal
bargaining power and competence.

The majority was critical of BMW for not making reasonable inquiries about the policy, and
in not giving due consideration to the policy document, which did not contain a cancellation
clause. Chief Justice French and Justice Kiefel further noted that the existence of common
assumptions and practices established between the parties or prevailing in a particular
industry can be relevant in determining whether there has been misleading conduct.

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In the determination of whether conduct was misleading, examine the relevant audience:
Relevant audience
In order to determine whether conduct is misleading, the court determines what would be the
likely effect of the conduct on the other party. It is often relevant whether the misleading
conduct was addressed to the public at large or a particular individual.

Public
To determine whether the public at large was likely to be mislead, the court adopts an
objective approach: would it be likely that an ordinary member of the class of persons to
whom the conduct is directed at would be deceived by the conduct of the Representor?
Campomar Sociedad Limitada v Nike International Ltd:
 Facts: Perfume goods were being displayed under the name NIKE and next to
similar Adidas products, although they were not products of Nike
International.
 Held: The court assesses the reaction of the public at large with a reference to
the ordinary person. The court can ignore fanciful reactions. The reasonable
person should be taking reasonable care (for example, an ordinary
consumer would check if pet food marked 'NIKE' is actually Nike or not).
However, in this instance, the average person would safely assume that the
products were marketed by Nike. Conduct is misleading.

Particular individuals
In a case where the conduct in question was addressed to a particular individual, the court
determines whether he was likely to be mislead by considering the particular circumstances:
 Nature of the parties - who are they, what is their level of expertise/financial ability to
seek further help
 Nature of the transaction
 What each party knew about the other
 The conduct itself.
This was discussed in Butcher v Lachlan Elder Realty:
Facts: The Plaintiff [Butcher, purchaser] was buying property (for commercial
purposes), through the Defendant [Lachlan, real estate agent]. The Defendant gave the
Plaintiff a brochure about the house, which had some false statement with regards to
the ability to renovate. However, the brochure also expressed that the Defendant is not
totally sure of what is represented (disclaimer).
Held: No misleading conduct, the Plaintiff fails
The Plaintiff was an intelligent and shrewd businessman who had a lot of money
(which he could have used to get further advice). The Defendant was a relatively
small real estate business with limited resources.
The transaction was a serious business transaction worth a lot of money. The Plaintiff
saw it as an investment and hired professional advisers with regards to renovation etc.
Regarding the diagram on the brochure which allegedly misled the Plaintiff, the court
ruled "Not only was it plain that the diagram had not been made by the agent, the
circumstances also negated any suggestion that the agent had adopted the surveyor's
diagram as its own, or that it had verified its accuracy." Furthermore, the disclaimer
was significant. Although it was in small print there wasn't much text on the brochure
and any reasonable reader should have noticed it. Thus, the brochure doesn't assert
that the information is accurate, or that the agent is the source of information.

Exceptions/defences to s 18 (Butcher v Lachlan Elder Realty (2004) CLR 592)

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Despite the strict liability nature of the offence, a person will not be deemed to have engaged
in misleading or deceptive conduct where:
1. the circumstances make it apparent that the person is not the source of the information
and that it expressly or impliedly disclaims any belief in its truth or falsity and is
merely passing on the information for what it is worth;
2. the person, while believing the information, expressly or impliedly disclaims personal
responsibility for what it conveys, for example, by disclaiming personal knowledge;
3. the person, while believing the information, ensures that its name is not used in
association with the information

Summary
Misleading or deceptive conduct is when one party induces another to enter a contract upon
false impressions. The use of misleading or deceptive conduct during business is prohibited
by the Australian Consumer Law, s 18:
 s 18 - A person must not, in trade or commerce, engage in conduct that is
misleading or deceptive or is likely to mislead or deceive. Contravention of
this section will compensated through remedies under the ACL.
 Requirements of conduct that is misleading or deceptive:
- The plaintiff was induced into believing an erroneous assumption as a
result.
- The plaintiff must show he relied on the misleading or deceptive conduct
when entering the contract (the conduct only needs to be one of the factors)
- Silence will constitute misleading or deceptive conduct only if there is a
duty of disclosure.
- Exclusion clauses cannot protect against these laws.
 Trade or commerce limitation - must be in the course of business. If not, a
plaintiff must sue under misrepresentation.
- Private sales of property between individuals not in trade or commerce,
unless it is for a business activity.
 The standard of measuring the effect of conduct:
- Public: the reasonable person, taking reasonable to his own safety.
- Particular individuals: nature of the parties, nature of transaction, what they
knew, conduct itself

DURESS

The presence of duress, undue influence or unconscionable conduct does not render a
contract void: the effect is to make a contract voidable, or to allow a party to approach the
court for an order setting the contract aside.

Duress signifies a procuring of contractual assent by an illegitimate threat. It is a victim’s

intentional submission arising from the realisation that there is no other practical course open.
It is no longer required that the conduct constituting the threat should fit into a preconceived
category other than the general requirement of ‘illegitimacy’. Also includes unconscionable
dealing (Crescendo management Pty Ltd v Westpac Banking Corp)

Causation: It is sufficient to enable a party to rely on duress for the pressure to have been a
cause of the decision to contract, even if the pressure is not the sole or principal cause.

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Basic elements
Not every form of pressure or threat can be considered duress. In the business world, a lot of
economic threats are legitimate commercial methods.

Universe Tankships of Monrovia v Int’l Transport Workers Federation:

Facts: Union named ITF threatened its portworkers would go on strike and not service a ship
unless $6, 480 paid to their welfare fund. Ship owner later claimed economic duress and
sought return of payment made. Union claimed immunity under trade union legislation.
Held: Trade union legislation didn’t provide immunity in this case. In determining what is
legitimate, consider two matters:
1. The nature of the pressure; and if required,
2. The nature of the demand which the pressure is applied to support.
Threat of unlawful action is illegitimate. Duress can still exist for lawful action – this depends
on the nature of the demand (eg blackmail can be lawful but still illegitimate).

Duress and coercion of a person

This involves actual or threatened violence. At common law, the doctrine was extremely
narrow, which meant that subtle ways of manipulation were not remedied. Equity intervened
to recognise such pressures as coercion and as duress. This included cases not only of
violence but also where a promise was induced by a threat of lawful prosecution of a person
or his family. A classic example is Barton v Armstrong:
Facts: Barton alleged Armstrong made death threats and this pressured him into
executing a deed relating to the sale of certain companies. Finding that during the 10
days prior to execution, he was feeling ‘very real mental torment’.
Issue: Real issue is nature of the illegitimate conduct rather than extent to which
consent is impaired
Held: Once threats made no contract resting in any degree on that foundation can
stand. It is up to the defendant (or threatener) to prove that the threats played no role.
In this regard, duress parallels fraud in that both will result in the contract being
voidable.
Duress needs to be only one of the reasons why the contract was entered into, and not
the sole or main reason. A finding that the threatened party would have still entered
the contract without the threats will not automatically rule that there is no duress,
since it may have contributed to the decision.
[Barton wins]

Duress of goods and compulsion

Payments made under compulsion, whether by virtue of contract or otherwise are prima facie
recoverable under principles of restitution since the involuntary nature of the payment makes
the enrichment of the payee an unjust enrichment. However where the payment was made in
discharge of a contractual obligation, such as under an agreement varying an existing
contract, no relief is available under the concept of unjust enrichment until the contract has
been validly avoided. The position is otherwise where restitution is sought in respect of an
excess payment, where duress causes the payer to pay more than its contractual duty requires.

Hawker Pacific v Helicopter Charter (1991, NSWCA)

Facts: Defendant had made errors in a paint job. When Plaintiff went to pick up helicopter, he
signed a document agreeing to pay $4300. However plaintiff didn’t pay $4300.

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Held: P urgently needed the helicopter for charter work that day. Defendant’s conduct
demonstrated that P couldn’t get the helicopter unless he signed the contract and was
analogous to duress, even though no express words said.
The period of ‘fobbing off’ in which the P didn’t pay but also didn’t complain of duress
doesn’t aid D in rejecting claim of duress.
Did the P affirm by delaying tactics? To make a case of affirmation, D must show either: (i) P
elected not to avoid contract or (ii) became estopped from asserting its right to avoid. Delay
is allowed so long as no significant prejudice to D, which in this case there wasn’t. Non-
payment by conduct shows intention to get out of agreement. Regarding estoppel, it operates
when P doesn’t know of legal right to elect to avoid contract but nevertheless acted to affirm
the contract to the detriment of D. This is not such a case since no clear representation or
detriment is evident.

Economic duress
Whether a new contract that has been procured should be regarded as voidable or a valid
compromise /settlement of claim?
Crescendo Management v Westpac Banking Corporation (1988, NSW) says will depend on:
 Whether there was a threat by the D to perform as opposed to a mere statement of
position;
 Whether the threat was a factor causing P to renegotiate contract; P must negotiate to
do what was necessary to avoid illegitimate pressure, to avoid the threat and its
consequences, making it clear that the matter is still open
o Consider: whether there was any effective alternative remedy, whether there
was protest at the time by P, how quickly P sought to have contract set aside
after threat was lifted, whether P received independent advice
Exceptions:
- if P entered in negotiation with intention of closing matter to avoid inconvenience of
litigation, such a contract will be upheld as a settlement
The approach to determining whether duress has influenced a contract is as follows:

1. Whether any applied pressure induced the victim to enter into the contract
(doesn't need to be the only or main reason); then
2. Whether the pressure went beyond what the law is prepared to class as
legitimate
o Pressure is illegitimate if it:
1. Consists of unlawful threats, or
2. Amounts to unconscionable conduct
 These are not closed categories. Overwhelming pressure not constituting
unlawful threats or unconscionable conduct can still amount to duress

A party who has entered a contract as a result of duress will be entitled to rescind.

UNDUE INFLUENCE

Undue influence falls short of ‘compulsion’, ‘coercion’, ‘extortion’, ‘exaction’ or ‘force’, but
is an influence deemed undue nonetheless. Undue influence, although a concept derived from
equity, like common law duress looks to the quality of the consent or assent of the weaker
party. Undue influence occurs when a party unfairly influences another to enter into a
contract. Undue influence is basically a more subtle form of pressure than threats.

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To prove undue influence, do one of the following:

1. Prove actual undue influence. This is where the party proves that there was
undue influence exerted by the other party which made it enter the contract.
2. Prove a general relationship of influence. This is where the party proves that
the relationship between it and the influencing party is generally one of
influence. It will then be up to the influencing party to prove it did not
influence this particular decision. Such a relationship may be established in:
o A relationship giving rise to a presumption - when there is a relationship
which is automatically considered as one in which there is undue influence (ie
parent and child).
o A relationship in fact - this is where the party proves that this particular
relationship with the influencing party is one of reliance despite not falling
into the accepted categories.
Since actual undue influence is hard to prove, a party usually attempts to prove that there was
a general relationship of influence. There are a number of relationships which are deemed to
be relationships of influence and therefore the court automatically adopts a presumption that
there was undue influence (transferring the onus of proof to the stronger party):
 Parent and child
 Guardian and ward
 Religious adviser and disciple
 Solicitor and client
 Doctor and patient
However, not all relations of trust are automatically relationships which presume undue
influence. The following examples will not automatically generate a presumption:
 Accountant and client
 Husband and wife (and vice versa)
 Fiduciary relationships
Johnson v Buttress (1936, HCA): The Plaintiff's father [Buttress] was an old illiterate man
who relied on the Defendant [Mrs. Johnson] to help him with day to day things. Buttress
expressed resentment towards his family, and wrote several wills under which he left nothing
to them, but instead, to people he spent time with currently. He transferred his land to the
Defendant as a gift (the solicitor asked him several times if he’s sure he wants to do it).
Buttress was happy to give the property away to the Defendant. Once Buttress died, his son
argued that the decision to give away the house was done under undue influence.
Held: a relationship of influence did exist - he was illiterate, was at a loss for guidance after
wife’s death and he was dependent on people his entire life. He may have used will-making
as a way of currying favour with those he depended on, since he changed the beneficiaries
several times. The onus of proof was therefore with the Defendant, and she failed to show
that she did not unduly influence the decision.

Rebutting the presumption

Was P given advice by an independent and well informed adviser?

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Westmelton v Archer and Schulman: Westmelton was a company that sued its lawyer Archer
and his business partner Shulman. Archer did the legal work for the company and said that a
particular bill could be reduced if he was guaranteed a share of future profits of the company.
The company later sought to void the agreement because Archer didn’t advise the directors
they should obtain independent legal advice.
Held:
 The company has no basis for its claim, it had ‘more expertise in commerce and
finance than most solicitors would have’
 There was no obligation for Archer to recommend independent advice, company
acted of its own free will and was not materially affected by confidence reposed
(since the directors discussed the profit percentage between themselves without
Archer present)

UNCONSCIONABILITY

Unconscionable dealing is established if:

1. A party is suffering from a condition or disability which renders it unable to
make a proper judgment in the transaction.
2. The other party is aware (or ought to have been aware) of this condition, and
takes an unfair advantage of this condition to procure a contract.
o Although not essential, a disadvantageous contract will provide proof that
unconscionable dealing has taken place, since it can show that the party didn't
make a proper judgment and that the disability was taken advantage of

Drunkenness or mental disorder

Blomley v Ryan: The Plaintiff bought a property off the Defendant in a very low price.
During the transaction and negotiation, the Defendant was heavily drunk and also very old
and feeble minded. This was clear to the Plaintiff. A while after the transaction, the
Defendant realised how he signed a disadvantageous contract. He refused to perform.
Plaintiff sought specific performance, Defendant seeks setting aside the contract.
Held: This is not a case where the Defendant had no idea at all about what he's doing, which
would void a contract in common law. Rather, this is a case of equity.
 The court can't rule that mere drunkenness is a defence to resist a contract, because
then people would abuse this defence. "Where, however, there is real ground for
thinking that the judgment of one party was, to the knowledge of the other, seriously
affected by drink, equity will generally refuse specific performance at the suit of that
other, leaving him to pursue a remedy at law if he so desires. And, where the court is
satisfied that a contract disadvantageous to the party affected has been obtained by
'drawing him in to drink', or that there has been real unfairness in taking advantage of
his condition, the contract may be set aside."
 inadequacy of consideration, while never of itself a ground for resisting enforcement,
will be important element in cases of this type. firstly as supporting the inference that
a position of disadvantage existed, and secondly as tending to show that an unfair use
was made of the occasion. In this case, the Plaintiff "took such an unfair advantage of
that condition that a court of equity could not allow the contract to stand."
 No affirmation by subsequent conduct either, as D received contract copy late

Kakavas v Crown: Facts: Kakavas was a problem gambler who had previously been excluded
from Crown, but years later was permitted to return after giving assurances he no longer

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suffered from a gambling problem. In the course of a little over a year he turned over almost
$1.5 billion.
The claim: Kakavas claimed Crown engaged in unconscionable conduct, first by exploiting
his gambling problem and entrapping him into becoming a regular visitor and second by
unconscientiously allowing and encouraging him to gamble while they knew - or ought to
have known - he would be required to forfeit winnings due to an interstate exclusion order.
On appeal to High Court: Appeal rejected. The Court stated that it: “did not accept that the
appellant's pathological interest in gambling was a special disadvantage which made him
susceptible to exploitation by Crown. He was able to make rational decisions in his own
interests, including deciding from time to time to refrain from gambling altogether. Crown
did not knowingly victimise the appellant by allowing him to gamble at its casino”

Lack of knowledge or education

Commercial Bank of Australia v Amadio: The Respondents [Amadio] signed a mortgage for
the Appellant [Bank of Australia] to secure loans for their son. They were not well informed
about the details of the mortgage. They were both Italian and spoke very little English, being
pretty much illiterate. When the Appellant attempted to seize the house, the Respondents
challenged the validity of mortgage
Held: Mason J: What distinguishes unconscionable dealing from undue influence is that in
unconscionable dealing "advantage is taken of an innocent party who, though not deprived of
an independent and voluntary will, is unable to make a worthwhile judgment as to what is in
his best interest."It is established that the lack of education (at least in English) and the old
age of the Respondents made them in a disadvantageous position.
 the court inquires whether the bank was aware of this condition: Obvious that they are
Italian, old, and bad at English. Obvious that their son acts as adviser and obvious that
he needs the mortgage so he doesn't have their best interests in mind. Inquiries by the
Respondents made it clear that their Son didn't explain the terms properly. "In these
circumstances it is inconceivable that the possibility did not occur to [the Appellant]
that the respondents' entry into the transaction was due to their inability to make a
judgment as to what was in their best interests"
 The same applies if A does not have actual knowledge, but has reason to believe.
Deane J: "Where such circumstances are shown to have existed, an onus is cast upon the
stronger party to show that the transaction was fair, just and reasonable."

IMPROPRIETY BY THIRD PARTIES

When a party has been induced to enter a contract by an improper conduct of a third-party the
victim may obtain relief if the following requirements are satisfied:
1. The conduct of the third-party was considered a vitiating factor. These include:
misrepresentation, misleading or deceptive conduct, Duress, Undue influence,
Unconscionable dealing
2. The other party to the contract affected the improper conduct. Parties will satisfy this
requirement if:
o The party relied on the third-party to procure the victim's acceptance.
o The party knew of, or had reason to believe that, the third-party was acting
improperly or a vitiating factor exists.
3. may obtain relief under the rule in Yerkey v Jones.1 The rule applies for wives
entering contracts to guarantee their husband's debts, and require that:

1
The rule does not apply if the wife also stands to benefit from the contract.

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 The wife entered without understanding the contract (the rule also applies if the
wife understood the transaction but her consent was obtained by the husband's
undue influence OR if the wife guaranteed a company controlled by the husband,
and she does not have a significant interest in it); and
 The wife entered without dealing with the other party personally.

Garcia v NAB: Appellant entered a mortgage with the respondent to secure money for her
husband. Clearly didn't understand it, had no interest in it and only did it because of
misrepresentations of her husband. The appellant sought to have the contract for mortgage set
aside.
 Held: Yerkey v Jones still applies. it is based on the trust and confidence between
marriage partners.
 does not depend upon the creditor having, at the time the guarantee is taken, notice of
some unconscionable dealing between the husband and the wife as surety.
 It would have been unconscionable for the respondent to enforce the guarantee against
the appellant as:
o the appellant did not understand the purport and effect of the transaction;
o the appellant was a volunteer because she did not obtain any financial benefit
from the transaction;
o the respondent was taken to have understood that, as a wife, the appellant may
have reposed trust and confidence in her husband in matters of business and
therefore to have understood that the husband may not have fully and
accurately explained the effect of the transaction; and
o the respondent took no steps to explain the effect of the transaction to the
appellant or to ascertain whether the effect of the transaction had been
explained to her by an independent and disinterested stranger.

RECISSION

Rescission is the act of cancelling the contract from the beginning and restoring the parties to
the positions they were in as if the contract was never made. It is thus distinguished from
discharge or termination of a contract where the rights and obligations accrued up to the
moment of termination remain in place.

Rescission under the common law: Under the common law, a person may rescind contract in
cases where he was a victim of fraud, duress or a total failure of consideration. However, he
may only do so if precise restitution is possible, which is often not the case.
Rescission in equity: Allows rescission in cases of an innocent misrepresentation and undue
influence. In addition, allows rescission even when only substantial restitution was possible.
Alati v Kruger: The Plaintiff purchased a store from the Defendant. The P was inexperienced
at running a fruit shop and the D knew a competing supermarket was about to open. The
Defendant made a representation about how much the store makes per week that turned out to
be false. The Plaintiff sought rescission of the contract and restoration to original position.
Held:
 D is guilty of a misrepresentation
 Although the business has deteriorated in the meantime, it was not due to P’s fault and
substantial (but not perfect) restitution is possible
 The fact that P abandoned the business cannot be held against him, because D could
have applied to the court for appointment of a receiver to preserve value of property

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 P should repay the value of any chattels he can’t return or court damages he received
from lower court to the D, so that both parties are put back to where they were

Brown v Smitt: it was held that the court may adjust the compensations of the parties (after
there have been improvements or deterioration of underlying farm) in order to ensure proper
restitution: “Where it has been wholly or substantially destroyed by the default of the party
seeking rescission, there can be no rescission because there can be no restitution. But where
the property has been improved or deteriorated by the act of the purchaser, and yet remains in
substance what it was before the contract, equity adjusts the rights of the parties by awarding
money compensation to one or the other, and so substantially putting each party in the
position which he occupied before the contract was made”.

The courts have enforced partial rescission, as in Vadasz v Pioneer Concrete (SA): Vadipile
gave a personal guarantee so that he could continue receiving concrete supplies for his
business on credit. However he thought it was only for future debts rather than past debts.
The High Court dealt with the matter on the basis that fraud on the part of Pioneer should be
assumed.
Held: The court may rescind only parts of the contract if the party entitled to rescission has
also acted unconscionably. "Thus unconscionability works in two ways. In its strict sense, it
provides the justification for setting aside a transaction. More loosely, it provides the
justification for not setting aside the transaction in its entirety or in doing so subject to
conditions, so as to prevent one party obtaining an unwarranted benefit at the expense of the
other." Court set aside the past debts and limited enforcement to future debts.

Affirmation
Coastal estates v Melevende: P was induced by misrepresentations to purchase land. He never
entered into possession. Although he became aware of some misrepresentations in early 1961
he nevertheless paid money under the contract and tried to sell the land or renegotiate. He
wasn’t aware of right to rescind until 1962.
Held:
 Before he will be held to have elected to affirm his conduct must be unequivocal.
 Actual knowledge of a right to elect is essential
o One important exception: if after discovery of facts which would entitle him to
avoid a contract, he exercises rights adverse to the other party, he is held to
have elected to affirm regardless of lack of knowledge
 In this case, the P had no knowledge of right to affirm till he consulted solicitors in
1962, therefore he is entitled to rescind the contract [Compare to Hawker Pacific v
Helicopter where it was held estoppel may nevertheless operate against a P]

Bars to rescission
1. Innocent misrepresentation in contracts for sale of goods - the common law does not
allow rescission, and it is arguable whether equity has jurisdiction. Watt v Westhoven
holds it does not, Graham v Freer holds it does
2. Executed contracts – some argue cannot be rescinded in the absence of fraud.
3. Affirmation - an affirmed contract cannot be rescinded
4. Lapse of time - If lapse of time amount to affirmation, there can be no rescission.
Delay itself will not be a bar to relief in equity but is relevant to the court’s exercise of
discretion.
5. Misrepresentation becomes a term of the contract - there is authority to suggest that a
party may still elect to rescind the contract on a basis of an innocent misrepresentation

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even if the misrepresentation becomes a term (i.e., he does not have to sue under
breach of contract).
6. Third Parties - rescission may be barred in cases where a third party became involved
and acquired rights under the contract. However, monetary remedies are available.
7. Exclusion/entire agreement clauses - non-fraudulent misrepresentations will be
protected by disclaimers or entire agreement clauses.
8. Notification - rescission will only be effective if it is communicated to the
Representor. An exception to this bar is when it is impossible to communicate

STATUTORY REMEDIES

Section 237 of Competition and Consumer Act 2010 (Australian Consumer Law)
237 Compensation orders etc. on application by an injured person or the regulator
(1) A court may:
(a) on application of a person (the injured person ) who has suffered, or is likely to
suffer, loss or damage because of the conduct of another person that:
(i) was engaged in a contravention of a provision of Chapter 2, 3 or 4; or
(ii) constitutes applying or relying on, or purporting to apply or rely on, a
term of a consumer contract that has been declared under section 250 to be an
unfair term; or
(b) on the application of the regulator made on behalf of one or more such injured
persons;
make such order or orders as the court thinks appropriate against the person who engaged in
the conduct, or a person involved in that conduct.
(2) The order must be an order that the court considers will:
(a) compensate the injured person, or any such injured persons, in whole or in part for
the loss or damage; or
(b) prevent or reduce the loss or damage suffered, or likely to be suffered, by the
injured person or any such injured persons.
***
Section 243
243 Kinds of orders that may be made
Without limiting section 237(1), 238(1) or 239(1), the orders that a court may make under
any of those sections against a person (the respondent ) include all or any of the following:
(a) an order declaring the whole or any part of a contract made between the
respondent and a person (the injured person ) who suffered, or is likely to suffer, the
loss or damage referred to in that section, or of a collateral arrangement relating to
such a contract:
(i) to be void; and
(ii) if the court thinks fit--to have been void ab initio or void at all times on
and after such date as is specified in the order (which may be a date that is
before the date on which the order is made);
(b) an order:
(i) varying such a contract or arrangement in such manner as is specified in
the order; and
(ii) if the court thinks fit--declaring the contract or arrangement to have had
effect as so varied on and after such date as is specified in the order (which
may be a date that is before the date on which the order is made);

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(c) an order refusing to enforce any or all of the provisions of such a contract or
arrangement;
(d) an order directing the respondent to refund money or return property to the
injured person;
(e) except if the order is to be made under section 239(1)--an order directing the
respondent to pay the injured person the amount of the loss or damage;
(f) an order directing the respondent, at his or her own expense, to repair, or provide
parts for, goods that had been supplied by the respondent to the injured person;
(g) an order directing the respondent, at his or her own expense, to supply specified
services to the injured person;
(h) an order, in relation to an instrument creating or transferring an interest in land,
directing the respondent to execute an instrument that:
(i) varies, or has the effect of varying, the first mentioned instrument; or
(ii) terminates or otherwise affects, or has the effect of terminating or
otherwise affecting, the operation or effect of the first mentioned instrument.

Loss or likely loss

Marks v GIO Australia Holdings Limited: The appellants entered into loan facilities with the
respondent (GIO). They relied on a misleading brochure that the interest would be at a
specified rate. The loan contract enabled GIO to vary the margin on giving 90 days notice.
GIO varied it to 2.25% per annum and gave opportunity to withdraw without penalty,
however appellants brought suit in court instead seeking to make good the representation
under Trade Practices Act s 87 [now s 237] or damages [now s 236]. Borrowers admitted that
even with the increased rate there was no better alternative on the market.
Held:
 requires identification of a causal link between loss/damage and conduct done in
contravention of the Act
 but not limited by measure of damages used in tort or contract common law
 Gaudron J: ‘expectation loss’: defined as damages payable for loss involved in non-
performance of the contract, including corollary damages sufficient to place P in
original position. On the other hand, law of tort confers no right over and above a
right to recover damages directly a consequence of the wrong involved.
 Here, borrowers admitted no better alternative
[therefore appeal dismissed]

Causation
Henville v Walker: The appellant (Henville) purchased land with the aim of developing a
block. He relied on representations by Walker regarding a ‘huge void’ for quality units and
potential selling prices. The appellant also made a mistake in his own feasibility study. The
appellant wouldn’t have proceeded unless he believed he’d realise a profit of at least
$100,000. An overall loss of $319846 was revealed.
Issue: contravention of s 52 TPA (now s 236 and s 18)
Held: Ask whether the act or omission ‘materially contributed’ to the loss/damage (consider
also intervening causes or third party actions). The representation need not be the ONLY
cause. Therefore in this case, it is clear that the representation was one of two main causes
that induced appellant to continue with the proposed project. The whole of the loss of
$319846 is therefore recoverable, even though other mistakes by appellant played a part.
 Contributory negligence can be used in assessing how much of the loss was caused by
contravention of the Act.
 Respondent could reasonably have foreseen the losses

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 Policy of the Act is also relevant as it aims to protect consumers

[Lesser amount of lower court awarded, as appellants hadn’t asked for whole amount]

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