Obligations

Week 9
Unfair Contract Terms
Mistake
 Topic 4 (cont’d)
Issues with contractual consent

• Duress

• Undue Influence

• Unconscionability

• Unfair Terms + Mistake

 Unfair terms
• ACL
 Part 2-3 – Unfair Contract Terms

ACL
Chapter 2 – General Protections
Part 2-3 – Unfair Contract Terms

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 Section 23 ACL
• Unfair terms of consumer contracts
(1) A term of a consumer contract is void if:
(a) the term is unfair; and
(b) the contract is a standard form contract.

(2) The contract continues to bind the parties if it is capable of operating

without the unfair term.

(3) A consumer contract is a contract for:

(a) a supply of goods or services; or
(b) a sale or grant of an interest in land;
to an individual whose acquisition of the goods, services or interest is
wholly or predominantly for personal, domestic or household use or
consumption.
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 Section 27 ACL
• Standard form contracts
(1) If a party to a proceeding alleges that a contract is a standard form
contract, it is presumed to be a standard form contract unless
another party to the proceeding proves otherwise.

(2) In determining whether a contract is a standard form contract, a

court may take into account such matters as it thinks relevant, but
must take into account the following: [see (a)-(f)].

 Two examples of potentially relevant matters under s 27(2):

(a) whether one of the parties has all or most of the bargaining power
relating to the transaction
(b) whether the contract was prepared by one party before any
discussion relating to the transaction occurred between the parties

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 Section 24 ACL
• Meaning of unfair
(1) A term of a consumer contract is unfair if:
(a) it would cause a significant imbalance in the parties’ rights and
obligations arising under the contract; and
(b) it is not reasonably necessary in order to protect the legitimate
interests of the party who would be advantaged by the term; and
(c) it would cause detriment (whether financial or otherwise) to a party
if it were to be applied or relied on.

(2) In determining whether a term of a consumer contract is unfair

under subsection (1), a court may take into account such matters as it
thinks relevant, but must take into account the following:
(a) the extent to which the term is transparent;
(b) the contract as a whole.
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 Section 24 ACL
(3) A term is transparent if the term is:
(a) expressed in reasonably plain language; and
(b) legible; and
(c) presented clearly; and
(d) readily available to any party affected by the term.

(4) For the purposes of subsection (1)(b), a term of a consumer contract

is presumed not to be reasonably necessary to protect the legitimate
interests of the party who would be advantaged by the term, unless
that party proves otherwise.

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 Section 25 ACL
• Examples of unfair terms
(1) Without limiting s 24, the following are examples of the kinds of
terms of a consumer contract that may be unfair: [see (a)-(n)].

 Three examples of unfair terms under s 25(1):

(a) a term that permits, or has the effect of permitting, one party (but
not another party) to avoid or limit performance of the contract
(d) a term that permits, or has the effect of permitting, one party (but
not another party) to vary the terms of the contract
(k) a term that limits, or has the effect of limiting, one party’s right to
sue another party

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 Section 26 ACL
• Terms that define main subject matter of consumer
contracts etc are unaffected
(1) Section 23 does not apply to a term of a consumer
contract to the extent, but only to the extent, that the term:
(a) defines the main subject matter of the contract; or
(b) sets the upfront price payable under the contract; or
(c) is a term required, or expressly permitted, by a law of the
Commonwealth, a State or a Territory.

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 Section 28 ACL
• Contracts to which this Part does not apply
(1) This Part does not apply to:
(a) a contract of marine salvage or towage; or
(b) a charterparty of a ship; or
(c) a contract for the carriage of goods by ship.

(2) … a contract for the carriage of goods by ship includes … any contract
covered by a sea carriage document within the meaning of the
amended Hague Rules …

(3) This Part does not apply to a contract that is the constitution … of a
company, managed investment scheme or other kind of body.

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 Topic 4 (cont’d)

• Duress
• Undue influence
• Unconscionability + Third party impropriety
+ Unfair terms
• Mistake

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 Remedies for mistake

• Contract may be void ab initio where the

mistake prevents formation.
• Contract may be voidable where the
mistake provides a right to rescind.
• Discretion to refuse remedy (eg. specific
performance).

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 Mistake of fact

• Mistake of fact
– What about a mistake of law?
• David Securities Pty Ltd v
Commonwealth Bank of Australia
(1992) 175 CLR 353
D made payments to C under a loan
agreement. But the agreement
contravened the Income Tax Assessment
Act 1936 (Cth). NB Restitution case.

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 Types of mistake

• Common mistake
– Parties make the same mistake

• Mutual mistake
– Parties are at cross-purposes

• Unilateral mistake
– One party only is mistaken

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 Common mistake

• Both parties make the same mistake

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 Common mistake

– Contract will be void (at common law) if

mistake as to some fundamental fact that
goes to the very existence of the contract
• Bell v Lever Bros Ltd [1932] AC 161

L appointed B as the managing director of a

subsidiary company. Three years later, L
needed to terminate B’s contract.

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 Common mistake

‘If parties honestly comply with the

essentials of the formation of contracts
– that is, agree in the same terms to the
same subject matter – they are bound,
and must rely on the stipulations of the
contract for protection from the effect
of facts unknown to them.’
– Bell v Lever Bros Ltd
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 Common mistake

• Contract will be void (at common law) if

mistake as to some fundamental fact that
goes to the very existence of the contract
(1) Res extincta
 Scott v Coulson [1903] 2 Ch 29
The person whose life was insured was already
dead.

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 Common mistake

 Galloway v Galloway (1914) 30 TLR 531

Mr & Mrs G, believing that they were lawfully
married, entered into a deed of separation. But
Mr G’s first wife was still alive.

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 Common mistake

Exception: Where the mistake arose

because of the carelessness of one party
• McRae v Commonwealth Disposals

Commission (1951) 84 CLR 377

C offered a wrecked tanker for sale by
tender. M’s tender was accepted. Then it
was discovered that there was no tanker in
existence.

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 Common mistake

(2) Res sua

 Cooper v Phibbs (1867) LR 2 HL 149
C contracted to lease a fishery from his cousin,
P. Both parties believed that P had inherited
the fishery from their uncle. In fact, at the time
he entered the lease, C was the owner of the
fishery.

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 Common mistake

• Mistake as to quality/attribute of subject

matter
 Leaf v International Galleries [1950] 2 KB 86
L purchased the painting ‘Salisbury Cathedral’
from I. Both parties believed that the artist was
John Constable. But this was not so.

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 Common mistake
‘There was a mistake about the quality of the
subject-matter, because both parties believed
the picture to be a Constable ... But such a
mistake does not avoid the contract: there
was no mistake at all about the subject-matter
of the sale. It was a specific picture, “Salisbury
Cathedral”. The parties were agreed in the
same terms on the same subject-matter, and
that is sufficient to make a contract.’
– Leaf v International Galleries
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 Common mistake
– Contract may be voidable (in equity) if the mistake is
fundamental in nature, there is no fault on the
claimant and it would be unconscionable to enforce.
• Solle v Butcher [1950] KB 671; [1949] 1 All ER 1107

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 Mutual mistake

• The parties misunderstand each other

– They are at cross-purposes

• Hence, there is no real agreement

– No meeting of minds

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 Mutual mistake

 Contract will be void (at common law)

 Raffles v Wichelhaus (1864) 159 ER 375
 The buyer agreed to purchase cotton from the
seller, to arrive on the ship ‘Peerless’ from Bombay.
But there were two ships of that name, both sailing
from Bombay.

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 Unilateral mistake

• One party only is mistaken, but the other

knows or ought reasonably to be aware of the
mistake
– Mistake as to terms
– Mistake as to identity

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 Unilateral mistake

• Mistake as to terms
 Hartog v Colin and Shields [1939] 3 All ER
566
The parties were negotiating the sale of
Argentine hare skins. All prices mentioned
were per piece. Then the seller made an offer
to sell at a certain price per pound. The buyer
immediately accepted that offer.

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 Unilateral mistake

 Taylor v Johnson (1983) 151 CLR 422

The contract was for the sale of 10 acres of
land, and the price specified was $15,000.
But T knew that J had intended the price to
be $15,000 per acre.

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 Unilateral mistake
‘… a party who has entered into a written contract
under a serious mistake about its contents in relation
to a fundamental term will be entitled in equity to an
order rescinding the contract if the other party is
aware that circumstances exist which indicate that
the first party is entering the contract under some
serious mistake or misapprehension about either the
content or subject matter of that term, and
deliberately sets out to ensure that the first party
does not become aware of the existence of his
mistake or misapprehension.’
– Taylor v Johnson
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 Unilateral mistake

• Mistake as to identity
 Boulton v Jones (1857) 157 ER 232
J ordered goods from a business, believing
that it was still owned by Brocklehurst. But
Brocklehurst had sold the business to
Boulton.

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 Unilateral mistake

 Cundy v Lindsay (1878) 3 App Cas 459

The rogue acquired handkerchiefs from L by
pretending to represent Blenkiron & Co.
Then the rogue disposed of the handkerchiefs
to C.

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 Unilateral mistake

 King’s Norton Metal Co v Edridge,

Merrett & Co Ltd (1897) 14 TLR 98
The rogue acquired wire from K by
pretending to represent Hallam & Co.
Then the rogue disposed of the wire to E.

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 Unilateral mistake

 Phillips v Brooks Ltd [1919] 2 KB 243

The rogue acquired a ring from P by
pretending to be Sir George Bullough.
Then the rogue disposed of the ring to B.

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 Unilateral mistake

 Ingram v Little [1961] 1 QB 31

The rogue acquired a car from I by
pretending to be PGM Hutchinson, a
reputable businessman. Then the rogue
disposed of the car to L.

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 Unilateral mistake

 Lewis v Averay [1972] 1 QB 198

The rogue acquired a car from L by
pretending to be Richard Green, a well-
known film actor. Then the rogue disposed
of the car to A.

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 Unilateral mistake
‘When a dealing is had between a seller … and a
person who is actually there present before him,
then the presumption in law is that there is a
contract, even though there is a fraudulent
impersonation by the buyer representing himself as a
different man than he is. There is a contract made
with the very person there, who is present in person.
It is liable no doubt to be avoided for fraud, but it is
still a good contract under which title will pass unless
and until it is avoided.’
– Lewis v Averay
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 Unilateral mistake

 Papas v Bianca Investments Pty Ltd (2002)

82 SASR 581
The rogue, using a false identity, acquired a
car from P. Then, with the car as security,
the rogue obtained a loan from B.

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 Unilateral mistake

 Shogun Finance Ltd v Hudson [2004] 1

Lloyd’s Rep 532
The rogue acquired a car from a dealer, using a
stolen driver’s licence to obtain finance from S.
Then the rogue disposed of the car to H.

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 Non est factum

• Mistake as to the type of document being

signed
– ‘This is not my deed’

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 Non est factum

 Foster v Mackinnon (1869) LR 4 CP 704

M, an elderly man with poor eyesight,
believed he was signing a guarantee. In fact,
it was a bill of exchange.

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 Non est factum

 Petelin v Cullen (1975) 132 CLR 355

P, who could not read English, believed he
was signing a receipt. In fact, it was an
extension of an option to purchase land.

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 Non est factum

• A party relying on non est factum must

establish that:
(i) the document they signed is significantly and
radically different to what they believed it to be;
(ii) the failure to read and understand the
document was not due to carelessness on their
part; and
(iii) they are within the class of persons entitled to
rely on the defence.
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 Non est factum
‘The class of persons who can avail
themselves of the defence is limited. It is
available to those who are unable to read
owing to blindness or illiteracy and who must
rely on others for advice as to what they are
signing; it is also available to those who
through no fault of their own are unable to
have any understanding of the purport of a
particular document.’
– Petelin v Cullen
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 Non est factum

 Saunders v Anglia Building Society [1971]

AC 1004
Mrs G, an elderly woman who was unable to
read because her glasses were broken,
believed she was signing an assignment of the
leasehold of her property to her nephew. In
fact, it was an assignment of the leasehold to
the nephew’s friend.

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