Remedies for Vitiating Factors (Rescission) Flashcards
(33 cards)
What is rescission?
○ Aims to put the parties in the position they would’ve been in as if the contract had never been formed: Restitutio in integrum
What does restitutio in integrum mean?
Returning to the position as if the contract was never performed
Alati v Kruger 1955 CLR principle
Recission is flexible: it will aim to return the parties to the position as if the contract never existed even if this isn’t entirely possible
Alati v Kruger 1955 CLR facts
- Contract for the sale of a fruit business
- Kruger entered agreement to buy shop and take over lease of the shop and all of the stock (everything)
- Told the average takings of the shop £100 per week -
- First week £44, one week £8
- Many weeks made a loss even without paying himself
Lawyer said 3 options:
• Damages for breach of warranty (Cannot rescind as this affirms the conract)
• Sue to cover damages for price he paid and (Cannot rescind since this affirms the contract)
• Rescission
○ Argued he could not be put in the precise position as before the contract
§ Fruit/vegetables were used up, sold, rotten etc.
§ Business was in worse shape - Kruger had no experience, closed shop to avoid loss, supermarket opened across the road (these factors known by seller at the time of making contract)
§ Plaintiff had taken shop with more time remaining on lease than at the time of trial - cannot be taken back
Alati v Kruger 1955 CLR decision
○ Common law requires them to be returned to their positions in a precise way but equity is flexible -
○ Equity: practical justice, enough that parties are substantially returned to their positions before the contract was formed
* Value of fruit: paid in monetary value * Business in worse shape: external element
If Kruger had acted unconscientiously it would be unfair for him to close the shop without giving the original owner notice.
Court found in Mr Kruger’s favour and undid the transaction
Vadasz v Pioneer Concrete 1995 CLR principle
Equity requires the parties are at least substantially returned to the positions they were in before.
There is a general equitable doctrine to ensure exercise of good conscience.
Vadasz v Pioneer Concrete 1995 CLR facts
Mr Vadasz was one of two directors of a business which used concrete supplied by Pioneer Concrete
Owed Pioneer Concrete over $200 000
Pioneer did not want to pay?
Mr Vadasz agreed to give a personal guarantee the concrete - he was only offering to guarantee the future costs
Guarantee actually covered all past debt
Company continued to incur debts up til $357 000
Pioneer sued for debt
Mr Verdasz sued for the misrepresentation (that it was only future debt)
Vadasz v Pioneer Concrete 1995 CLR decision
- In accordance with equitable maxim: he who seeks equity must do equity
- Set aside only the part of the guarantee which was provided by the representation
- Still required to pay $157 000
HIGH COURT
• Mr Vadasz: rescind whole contract
• Pioneer - then return our concrete?
• Equity requires the parties are at least substantially returned to the position they were in before
• Only circumstance where he could get rescission if equity was to exercise it’s general jurisdiction to set aside contract to ensure the exercise of good conscience
• Courts didn’t think the general jurisdiction should be used here
○ Nothing practically just about allow Mr Vadasz to get out of his obligations - when he got a lot of
○ Unwarranted benefit at the expense of Pioneer
○ Distinguished from Amadio: Mistaken as to amount, duration and state of sons company
§ Amadio’s wouldn’t have entered at all if they had known about the state of the company they wouldn’t have entered at all - therefore higher remedy warranted
If they had only been misrepresented as to the money it is likely a lower remedy would have been given
Hartigan v International Society for Krishna Consciousness Inc [2002] NSWSC principle
Rescission in equity is flexible
- If property is involved and has already been sold the party can receive the monetary value instead of the property itself
Hartigan v International Society for Krishna Consciousness Inc [2002] NSWSC facts
- Gifted farming property to Krishna
- Company sold property then used the money to reduce the debt on a different property
- The court found the contract was vitiated by the undue influence over Hatigan - relationship as a matter of fact
- Defendant argued plaintiff wasn’t entitled to any remedy because even if there was undue influence the parties couldn’t be returned to same as before - the property couldn’t be got back from the third party
Hartigan v International Society for Krishna Consciousness Inc [2002] NSWSC decision
- Since the property was no longer in the organisations control the correct remedy as for the amount the organisation received for the property should be returned to the plaintiff
- Demonstrates the flexibility in rescission in equity
When are statutory remedies applied?
• Applied where s20 (unconsionable conduct) or s18 (misleading or deceptive conduct) have been contravened
s236 Australian Consumer Law
S236 Actions fordamages
(1) If:
(a) aperson(theclaimant) suffers loss ordamagebecause of the conduct of anotherperson; and
(b) the conduct contravened aprovisionof Chapter2 or 3;
the claimant may recover the amount of the loss ordamageby action against that otherperson, or against anypersoninvolved in thecontravention.
(2) An action under subsection(1) may be commenced at any time within 6 years after the day on which the cause of action that relates to the conduct accrued.
Division4–Compensation orders etc. for injuredpersonsand orders for non-partyconsumers
Subdivision A–Compensation orders etc. for injuredpersons
note: limited to actual loss suffered
s237 Australian Consumer Law
237 Compensation orders etc. on application by an injuredpersonor the regulator
(1) A court may:
(a) on application of aperson(theinjuredperson) who has suffered, or is likely to suffer, loss ordamagebecause of the conduct of anotherpersonthat:
(i) was engaged in acontraventionof aprovisionof Chapter2, 3 or 4; or
(ii) constitutesapplyingor relying on, or purporting toapplyor rely on, a term of aconsumercontract that has been declared under section250 to be an unfair term; or
(b) on the application of the regulator made on behalf of one or more such injuredpersons;
make such order or orders as the court thinks appropriate against thepersonwho engaged in the conduct, or apersoninvolved in that conduct.
Note 1: For applications for an order or orders under this subsection, see section242.
Note 2: The orders that the court may make include all or any of the orders set out in section243.
(2) The order must be an order that the court considers will:
(a) compensate the injuredperson, or any such injuredpersons, in whole or in part for the loss ordamage; or
(b) prevent or reduce the loss ordamagesuffered, or likely to be suffered, by the injuredpersonor any such injuredpersons.
(3) An application under subsection(1) may be made at any time within 6 years after the day on which:
(a) if subsection(1)(a)(i) applies–the cause of action that relates to the conduct referred to in that subsection accrued; or
(b) if subsection(1)(a)(ii) applies–thedeclarationreferred to in that subsection is made.
NOTE: Covers loss likely to be suffered
Non exhaustive list
What 3 things must you prove in order to claim a statutory remedy?
• A contravention of one of the sections
• Actual loss (s236) or likely loss (s237)
• Causal connection between loss and contravention
○ Often because they acted in reliance or failed to act because of the contravening conduct
○ Act or event materially contributed to the loss suffered
○ Common sense approach is sufficient
Henjo Investments
If damages are calculated with reference to tort what do they aim to do?
Calculated to put the plaintiff in the position they would have been in, had the tort not been committed
What is the difference between a claim in tort and contract?
E.g. Furniture worth $50 on eBay. Buyer at the last minutes clicks to buy for $200. They later refuse to proceed. Seller makes a claim in both tort and contract.
○ Contract: $150 ($200 minus mitigation of loss)
○ Tort: Position without tort is that the contract would not have taken place. Therefore no damages are awarded - no loss.
Gates v City Mutual Life Assurance Society 1986 CLR principle
Tort like remedy is preferred for misleading or deceptive conduct - put in position as if the tort hadn’t been committed.
Gates v City Mutual Life Assurance Society 1986 CLR facts
- Told Mr Gates he should take out an additional policy in case he became disabled
- Said he would be able to claim if he couldn’t work as a builder for 90 days
- Actually he could only claim if he couldn’t work in any occupations
- Gates was injured and couldn’t work as a builder but could work in a different obligation
Misleading and deceptive conduct
Issue: What damages should be awarded?
Gates v City Mutual Life Assurance Society 1986 CLR decision
• Contract:
○ Benefit of contract as it had been represented to him, rather than what it actually was
• Tort:
○ Sum compensated for how much worse off he was
○ Position if tort hadn’t been committed
○ He wouldn’t have any insurance at all - the whole thing was the agents idea: he didn’t seek insurance himself
○ If he could show he would have entered into a policy as it was represented he could claim damages. However this was not the case: without the agent he wouldn’t have entered the contract
○ No loss: no damages
• Tort like remedy preferred in situations involving prohibition of misleading and deceptive conduct
• Criticised for advocating a measure which won’t deter misleading and deceptive conduct
• Suggested changes
○ Different remedies
○ Made criminal
NOTE: If he had made positive decision to buy insurance (rather than a suggestion from the insurance company) he would have received damages because the tort is different.
How are damages calculated if a contract analogy is applied?
Calculated to out the plaintiff in the position they would have been had the contract been properly performed: compensation principle
Murphy v Overton Investments 2004 CLR principle
The courts aren’t and shouldn’t be bound by analogy.
Take into account loss which cannot actually be proved: they expected to pay less so there was a loss, even if it cannot be shown the amount. (Contract-like)
Murphy v Overton Investments 2004 CLR facts
- Appellants purchased a leasehold interest in a unit in a retirement home operated by the respondent
- Tenant required to pay monthly ‘outgoings’
- Before they entered they were provided with an estimate
- Estimate was misleading because it didn’t take into account all costs
Murphy v Overton Investments 2004 CLR decision
• Analogies to tort of deceit has made it seems like there is only one type of loss which can be suffered
• Not bound by analogy “The court has said more than once that it is wrong to approach the operation of those provisions of Pt VI of the Act which deal with remedies for contravention of the Act by beginning the inquiry with an attempt to draw some analogy with any particular form of claim under the general law”
• Not only form that loss or damage can take
• They can suffer loss
• Not determined only by comparing financial positions (tort-like approach) suffered loss by virtue of continuous obligations which were larger than they thought to believe
• Plaintiff’s weren’t given option to get out of contract, as in Marks
Should be sent back to the trial judge to award damages.
