Remedies for Vitiating Factors (Rescission)

Question 1

What is rescission?

Answer 1

○ Aims to put the parties in the position they would’ve been in as if the contract had never been formed: Restitutio in integrum

Question 2

What does restitutio in integrum mean?

Answer 2

Returning to the position as if the contract was never performed

Question 3

Alati v Kruger 1955 CLR principle

Answer 3

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

Question 4

Alati v Kruger 1955 CLR facts

Answer 4

• 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

Question 5

Alati v Kruger 1955 CLR decision

Answer 5

○ 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

Question 6

Vadasz v Pioneer Concrete 1995 CLR principle

Answer 6

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.

Question 7

Vadasz v Pioneer Concrete 1995 CLR facts

Answer 7

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)

Question 8

Vadasz v Pioneer Concrete 1995 CLR decision

Answer 8

• 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

Question 9

Hartigan v International Society for Krishna Consciousness Inc [2002] NSWSC principle

Answer 9

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

Question 10

Hartigan v International Society for Krishna Consciousness Inc [2002] NSWSC facts

Answer 10

• 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

Question 11

Hartigan v International Society for Krishna Consciousness Inc [2002] NSWSC decision

Answer 11

• 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

Question 12

When are statutory remedies applied?

Answer 12

• Applied where s20 (unconsionable conduct) or s18 (misleading or deceptive conduct) have been contravened

Question 13

s236 Australian Consumer Law

Answer 13

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

Question 14

s237 Australian Consumer Law

Answer 14

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

Question 15

What 3 things must you prove in order to claim a statutory remedy?

Answer 15

• 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

Question 16

If damages are calculated with reference to tort what do they aim to do?

Answer 16

Calculated to put the plaintiff in the position they would have been in, had the tort not been committed

Question 17

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.

Answer 17

○ 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.

Question 18

Gates v City Mutual Life Assurance Society 1986 CLR principle

Answer 18

Tort like remedy is preferred for misleading or deceptive conduct - put in position as if the tort hadn’t been committed.

Question 19

Gates v City Mutual Life Assurance Society 1986 CLR facts

Answer 19

• 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?

Question 20

Gates v City Mutual Life Assurance Society 1986 CLR decision

Answer 20

• 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.

Question 21

How are damages calculated if a contract analogy is applied?

Answer 21

Calculated to out the plaintiff in the position they would have been had the contract been properly performed: compensation principle

Question 22

Murphy v Overton Investments 2004 CLR principle

Answer 22

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)

Question 23

Murphy v Overton Investments 2004 CLR facts

Answer 23

• 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

Question 24

Murphy v Overton Investments 2004 CLR decision

Answer 24

• 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.

Question 25

Marks v GIO Australia Holdings (1998) CLR principle

Answer 25

• Nothing suggests the damages should be limited to analogy to contract or tort or equity
  
  • The fact that the remedies can be applied widely, some of which invite analogies to tort (s18), equity (s20) or have no ready analogy. Shows it is wrong to limit the reference of the act to one or more remedies.
  • Gates court had expressly held that courts are not bound to make a definitive choice that one form of remedy applies
  • Often the amount of loss or damage caused by a contravention of the prohibition of misleading and deceptive conduct will coincide with an action for deceit
  • Very often the loss or damage that follows the contravention will be the same as what follows from the tort of deceit
  • Warned against pressing the analogy too far by concluding that the only damages for action for deceit are tortious damages

Question 26

Marks v GIO Australia Holdings (1998) CLR facts

Answer 26

• Loan agreement between borrower plaintiffs and GIO, who lent the funds
  
  • GIO had misrepresented that they’d only be required to pay interest at 1,25% (Base rate) plus a margin fixed at 1.25%
  • The margin wasn’t fixed - it could be varied after 90 days notice
  • Margin increased to 2.25%
  • GIO gave them the option to leave without penalty
  • Sued for misleading and deceptive contract
  • Wanted damages under 236 or 237 (Trades act equivalent)

What type of damages are appropriate?

Question 27

Marks v GIO Australia Holdings (1998) CLR decision

Answer 27

Gaudron:
• In contract the plaintiff is required to gain damages for loss of bargain
• Tort: not complaining of failure to implement promise - he is complaining of a failure to leave him alone
• Referring to different kinds of loss - not a different way of calculating loss

Clients wanted order varying contract to say the rate was 1.25% and couldn’t be varied
Had to show loss: High Court didn’t think they had suffered or had been likely to suffer loss

McHugh, Callinan, Hayne
• The fact that a contract made is different to what was represented, doesn’t mean there is automatically a loss
• Has to be shown that the party could have acted in a different way that would have been less detriment than the course adopted
• Ascertain value of what was acquired
○ Person agrees to pay $50,000 for a house which is falsely represented to be worth $100,000 (but are worth $50,000)
○ Agrees to interest for 10% for which the person represents would ordinarily be 15% (but actually would have been 12%
§ In neither of these the party hasn’t suffered any loss - the
§ It is only if some less detrimental or more beneficial course was available then a comparison of value had been made
□ E.g. In A if there was an alternative where the house was worth $70
• Plaintiffs conceded that even with the increased loan, the offer was still the best on the market
• They had suffered and would suffer NO LOSS as a result of the misleading and deceptive conduct

Gummow
• Exercise by one party to increase contractual obligations there may be an injury which is damage, even though the loan is the best one available to them.
• However that loss wouldn’t apply until the new interest rate did (90 days after increased margin)
• Before the rate applied they had the option to leave but decided to affirm the contract. The rise in interest rate applied because of their affirmation, rather than the misleading and deceptive conduct.

Kirby:
• Defendant shouldn’t be able to get away with this
• Major financial corporation
• Wide variety of remedies

Question 28

Henjo Investments v Collins Marrickville 1988 FCR principle

Answer 28

The court has discretion over which type of remedy would be suitable. They are required to balance relevant factors to determine which type of remedy would create the most justice. Restitution and damages are common remedies.

Question 29

Henjo Investments v Collins Marrickville 1988 FCR facts

Answer 29

• The Plaintiff [Collins] bought a lease to a restaurant off the Defendant [Henjo].
• The restaurant was operating illegally - it seated way more people than its license allowed.
• The Plaintiff was led to believe (via a signed card and by observation of the premises) that the illegal capacity was licensed.
• The Plaintiff hired a lawyer to make sure everything was right with the license, but he didn’t make any inquiries.
• The contract had both an entire agreement clause and a disclaimer of all prior representations.
• After the transaction went through, the Plaintiff finally found out
• Misleading and deceptive conduct established

Issue: Suitable remedy?

Question 30

Henjo Investments v Collins Marrickville 1988 FCR decision

Answer 30

5 matter central to relief:

1. Most of the trading losses were not 'directly attributable' to the misrepresentations
2. Removal of the bar stools (excess seating) had an adverse effect upon the restaurants takings and minor effects on profits
3. The business operated with the excess seats and made losses
4. There have been substantial changes to the restaurant but this does not rule out restitution (trial judge) however since the reputation of the business has reduced so significantly it may not be appropriate
5. Collins did not actively prosecute after it's commencement and changed course midway through proceedings - caused delays 

Cannot make a claim for restitution and should be left to pursue damages.
Court Will consider conduct of parties after misrepresentation
Retrial on amount of damages to be awarded

Question 31

Henville v Walker (2001) CLR principle

Answer 31

• Causation cannot be reduced to a single test
  
  • The part of the ACL are broad and cover many section. ‘by conduct’ connotes a causal link and a requirement of remoteness, however these are flexible and do not follow the strict common law
  • The wrongful conduct need not be the sole cause of the loss: if loss is suffered in actual reliance on misleading conduct a person will not be denied relief because there were other influences or because the loss would have been incurred without the misleading or deceptive conduct
  • Chain of causation can be severed by a novus actus interveniens
  • ‘by conduct’ connotes a causal link
  • The common law concept of causation is concerned with determining only whether some breach of a legal norm was so significant that, as a matter of common sense, it should be regarded as a cause of damage
  • If the defendant’s breach has ‘materially contributed’ to the loss or damages it will be sufficient for causation

Question 32

Henville v Walker (2001) CLR facts

Answer 32

• Henville purchased land in Albany with the aim of developing 3 units
  
  • Relied on representations from Walker (vendor’s agent) regarding a ‘huge void’ in the market for quality units and the selling price of such units which were a huge overestimation
  • Rather than making a large profit, as represented, Henville made a substantial loss

Question 33

Henville v Walker (2001) CLR decision

Answer 33

• Henville claimed he would not have gone ahead with the project unless he believed the profits would be at least $100,000
  
  • Two errors:
    ○ His own, in estimating the expenditure
    ○ The agents, in estimating the sale price
  • The fact that he made a mistake did not interfere with the operation of Walker’s misrepresentation
  • Expectation damages are only applied when there is an obligation to perform the representation