Contract Law: Misrepresentation and Mistake

Misrepresentation

• A false statement of a material fact, made to induce someone into a contract.
• To be actionable, it must be:
  • A statement of fact (not opinion or future promise).
  • False.
  • Intended to induce the other party into the contract.

Types of Misrepresentation

• Fraudulent: Deliberate lie, with no belief in its truth.
• Negligent: False statement made carelessly.
• Innocent: False statement believed to be true.

Examples of Misrepresentation

• Edgington v Fitzmaurice: A statement of intention that was false was considered actionable misrepresentation.
• Spice Girls Ltd v Aprilia World Service BV: Misrepresentation by conduct when the Spice Girls didn't disclose that one member planned to leave, misleading the other party.

Mistake

• Common Mistake: Both parties make the same mistake about a fundamental fact.
• Mutual Mistake: Both parties are mistaken, but in different ways, so there is no "meeting of the minds."
• Unilateral Mistake: One party is mistaken, and the other knows or should have known of the mistake.

Examples of Mistake

• McRae v Commonwealth Disposals Commission: Common mistake; voided the contract as both parties were mistaken about the existence of a key fact.
• Raffles v Wichelhaus: Mutual mistake resulted in no contract due to ambiguity about which shipment was meant.

Duress

• Wrongful pressure exerted on a party to force them into a contract against their free will.

Types of Duress

• Duress to the person: Threats of violence or confinement (e.g., Barton v Armstrong).
• Duress of goods: Detaining or damaging another’s goods.
• Economic Duress: Financial threats to force an agreement (e.g., North Ocean Shipping Co. Ltd v Hyundai Construction Co. Ltd).

Undue Influence

• When a dominant party unfairly influences a weaker party to obtain consent.
• Often seen in cases where one party has significant influence over the other.

Unconscionable Conduct

• Exploiting a party with a "special disability" (e.g., age, lack of education) for unfair gain.
• Prohibited both by equity and statute.

Example of Unconscionable Conduct

• Commercial Bank of Australia v Amadio: The court found that the bank acted unconscionably by taking advantage of the elderly, ill-informed Amadios.

Discharge of Contracts

• Performance: Both parties fulfill contract terms precisely, ending the contract.
• Partial Performance: May be accepted depending on the circumstances (e.g., divisible contracts, substantial performance).
  • Divisible Contracts: Contracts where parts can be completed independently (e.g., monthly service contracts).
  • Substantial Performance: The main objectives of the contract are achieved, but minor shortcomings may allow for adjusted payment.
    • Case example: Hoenig v Isaacs (1952) - The contractor received payment minus the cost of minor defects.
• Frustration: Unforeseen events make contract performance impossible or radically different, ending the contract without fault.
  • Case example: Taylor v Caldwell (1863) - The music hall was destroyed by fire before an event, frustrating the contract as the venue was essential.
  • Exceptions: Frustration does not apply if the performance simply becomes more costly or inconvenient (e.g., a longer route).
    • Case example: Tsakiroglou & Co v Noblee - A longer shipping route did not frustrate the contract.
• Breach: Failure to meet contractual obligations.
  • Actual Breach: A party does not perform as agreed on the contract's due date.
  • Anticipatory Breach: A party indicates they won't perform before the due date, allowing the other party to terminate the contract.
• Remedies for Breach:
  • Rescission: Ending the contract.
  • Damages: Compensation for losses.
  • Quantum Meruit: Payment for work done.
• Liquidated Damages vs. Penalties:
  • Liquidated Damages: Agreed amounts reasonably estimating the loss from a breach.
  • Penalty Clauses: Amounts excessively high to deter breach, often unenforceable by courts.

Negligence Concepts

• Negligence: Failure to exercise reasonable care, causing harm to another.
  • Duty of Care: Responsibility to avoid acts or omissions that could harm others.
  • Breach of Duty: Falling short of the expected care in a situation.
  • Damage or Loss: Harm caused by the breach.
• Duty of Care in Common Law: Established by Donoghue v Stevenson (1932), where a manufacturer was held liable for harm caused to a consumer by a defective product.
  • This case established the "neighbor principle" where one must take reasonable care not to harm others.

Purpose of Insurance in Contracts

• Insurance protects both parties in a contract from financial losses caused by one party's actions
• Contractors are often required to have liability insurance, protecting them from financial responsibility for damages or losses they might cause.

Types of Insurance Policies

• Public Liability Insurance: Covers legal liability for injuries or damage to third parties, like a customer tripping in a store.
• Workers Compensation Insurance: Provides benefits to employees injured on the job. It's mandatory for employers.
• Professional Indemnity Insurance: Protects professionals (e.g., lawyers, architects) against liability for errors in their services.
• Product Liability Insurance: Covers harm caused by faulty products sold by the insured.
• Works Insurance: Protects against loss or damage to construction projects and equipment on-site.

Key Policy Considerations

• Scope of Coverage: Determine if the insurance covers the entire project or just specific parts. Check if subcontractors are included.
• Exclusions and Limitations: Identify any risks or claims that are not covered by the policy.
• Level of Cover: Ensure the insurance policy provides enough coverage for the project's scale.

Common Dispute Causes

• Differences in contract interpretation
• Unforeseen conditions during the project
• Delays in construction or project completion
• Financial disagreements between involved parties.

Defining a Dispute

• A dispute officially arises when one party makes a claim, and the other party rejects it.

Types of Claims

• Contract-based Claims: Arise from specific contract terms, such as variations to the project or faulty work.
• Statutory Claims: Claims based on laws like Australian Consumer Law.
• Common Law Claims: Claims for breach of contract or negligence.

Dispute Resolution Methods

• Alternative Dispute Resolution (ADR): These methods aim to resolve disputes without court proceedings. They include mediation and arbitration.

ADR Methods

• Mediation:

  • A neutral mediator helps parties reach a compromise.
  • It's private, less formal, faster, and often cheaper than court proceedings.
  • Advantages: Confidentiality, flexibility, lower costs.
  • Disadvantages: The agreement is non-binding, and any party can withdraw at any time.

• Arbitration:

  • A formal process where an arbitrator makes a binding decision.
  • It's often faster than court proceedings and is legally enforceable like a court judgment.
  • Advantages: Private, binding, and faster than litigation.
  • Disadvantages: Parties give up control of the decision-making process and may have limited appeal options.

• Expert Determination:

  • An expert (often in technical fields) makes a decision based on contract terms. The decision is binding if agreed upon.
  • Advantages: Efficient, suitable for technical disputes, confidential.
  • Disadvantages: It's hard to challenge the decision, and appeals are not usually available.

Litigation

• Formal court proceedings where a judge makes a final decision based on law.
• Advantages: Final, binding decision, and appeal options are available.
• Disadvantages: Public, costly, formal, and may damage business relationships.

Misrepresentation

• A false statement of a material fact made to induce someone into a contract, which must be:
  • A statement of fact (not an opinion or future promise)
  • False
  • Intended to induce the other party into the contract
• Types of Misrepresentation:
  • Fraudulent: Deliberate lie, with no belief in its truth
  • Negligent: False statement made carelessly
  • Innocent: False statement believed to be true
• Examples:
  • Edgington v Fitzmaurice: A statement of intention that was false was considered actionable misrepresentation.
  • Spice Girls Ltd v Aprilia World Service BV: Misrepresentation by conduct occurred when the Spice Girls didn't disclose that one member planned to leave, misleading the other party.

Mistake

• Types of Mistake:
  • Common Mistake: Both parties make the same mistake about a fundamental fact.
  • Mutual Mistake: Both parties are mistaken, but in different ways, so there is no "meeting of the minds."
  • Unilateral Mistake: One party is mistaken, and the other knows or should have known of the mistake.
• Examples:
  • McRae v Commonwealth Disposals Commission: Common mistake; voided the contract as both parties were mistaken about the existence of a ship.
  • Raffles v Wichelhaus: Mutual mistake with no contract due to ambiguity about which shipment was meant.

Duress

• Wrongful pressure exerted on a party to force them into a contract against their free will
• Types of Duress:
  • Duress to the person: Threats of violence or confinement (e.g., Barton v Armstrong).
  • Duress of goods: Detaining or damaging another’s goods.
  • Economic Duress: Financial threats to force an agreement (e.g., North Ocean Shipping Co.Ltd v Hyundai Construction Co.Ltd).

Undue Influence

• When a dominant party unfairly influences a weaker party to obtain consent.
• Often seen in cases where one party has significant influence over the other.

Unconscionable Conduct

• Exploiting a party with a "special disability" (e.g., age, lack of education) for unfair gain.
• Prohibited by both equity and statute.
• Example:
  • Commercial Bank of Australia v Amadio: The court found that the bank acted unconscionably by taking advantage of the elderly & ill-informed Amadios.