The Law Handbook 2024

678 Section 7: Consumers, contracts, the internet and copyright and conditions, that person is bound by the contract and is not entitled to plead mistake. Other factors may also be relevant to a successful plea of mistake. For instance, whether or not the defence of mistake will be allowed often depends on whether an innocent third party will be adversely affected by a decision that the contract is non- binding. Again, if the signer failed to take reasonable precautions, the defence will not succeed. Misrepresentation or misleading conduct Misrepresentation or misleading conduct in a contract scenario can be dealt with under the common law and equitable principles. However, misrepresentation or misleading conduct is now often dealt with under the Australian Consumer Law ( ACL ). Whether a party relies on the common law and equitable principles and/or the ACL depends on the nature of the transaction (e.g. whether the transaction was made in trade or commerce), the type of misrepresentation, and the remedy a party is seeking. This section focuses on the common law and equitable principles. For information about statutory protections against misleading or deceptive conduct, and the making of false representations in relation to the sale of goods and services, see Chapter 7.2: Consumer protection laws. If you think that misrepresentation or misleading conduct has occurred in the context of a contract, consider the statutory protections under the ACL. It can be easier to prove misleading or deceptive conduct and false representation under the ACL, and the ACL provides more flexible remedies compared to the common law and equitable principles. What types of remedies are available for misrepresentation? The remedies that are available for misrepresentation are rescission and/or damages and/or termination. Rescission Under the common law and equity rules, if a person is induced to enter into a contract as a result of another party’s misrepresentation or misleading conduct, then the misled party may choose to ‘rescind’ the contract. This means that the contract is void from the beginning and is unenforceable. Rescission of a contract also means that both parties are restored to the positions they were in before they entered into the contract (this may require the court to order some monetary adjustments). For example, A induces B to enter into a contract of sale to purchase a business by presenting overinflated profit and loss statements that show the business to be much more profitable than it actually is. B can choose to rescind the contract on the basis that A misrepresented the business’ profit and loss statements and engaged in misleading conduct. Rescission would result in B having any money that they paid for the business returned as if the contract of sale never occurred. If it is not substantially possible to restore the parties to their original positions, then rescission may not be available. If the misled party chooses to rescind the contract, then they cannot sue the other party for breaching the contract (because, for example, the misrepresentation constitutes a term of the contract). This is because it is not possible to both cancel a contract from the beginning and sue for breaching it. So using the above example, if B wanted to keep the business, despite the misrepresentation (and assuming the misrepresentation constituted a term of the contract), B could choose to keep the contract and instead sue A for breach of contract and claim any damages, including loss of profit, that they would have suffered as a result of the misrepresentation. Under the ACL, the court has the discretion to order rescission. Rescission is a defence to any action for damages or specific performance against the misled party. Damages A misled party may also have a right to damages (either in addition to, or instead of, rescission): • in the tort of deceit, where there is fraudulent misrepresentation; • in the tort of negligence, where there is negligent misrepresentation; • under the ACL; and • where the misrepresentation constitutes a term of the contract (whether as a condition, an ‘intermediate term causing a substantial loss of benefit’ or a warranty), and the other party breached that term with misrepresentation. For more information about conditions and warranties, see ‘The terms of a contract’, below. It is important to note that in the first three scenarios above, the misled party may have the right to