The Law Handbook 2024

680 Section 7: Consumers, contracts, the internet and copyright Innocent misrepresentation An innocent misrepresentation is where a misrepresentation is made with no intention to deceive and without any negligence. If the misled party is nevertheless induced to enter the contract, either because it was a reasonable consequence of the misrepresentation (even though the representor did not intend or expect this) or because of its own idiosyncrasy, the misled party may be entitled to rescind the contract. However, it is arguable that if no reasonable person would have been induced to enter the contract or rely on the misrepresentation, then the misled party would not be entitled to rescind the contract. Where there is innocent misrepresentation, the misled party is not entitled to damages for any tort. The misled party is only entitled to the contractual remedies of damages/termination if the representation constituted a term of the contract, and the other party breached that term by their misrepresentation. Duress Proper consent may be affected by duress. Under the common law, duress is where there has been actual or threatened violence either to the other contracting party directly or to their immediate family, near relatives or close associates. The duress may be made by someone acting under the instructions of the party to the contract. The effect, though, will have been that a party has been forced into the contract by being deprived of their free will to act. Duress now extends to contracts entered into as a result of threats to a party’s economic wellbeing, that is, a threat to a person’s business or trade. This form of duress is called economic duress. To prove duress, it must be shown that: • a party applied unlawful or unconscionable pressure (whether physical, economic or psycho­ logical pressure) to force the other party to enter into the contract; and • such pressure meant that the other party had no reasonable alternative but to enter into the contract, and • such pressure was a cause of the other party entering into the contract. The consequence of establishing duress is that the contract is voidable at the election (i.e. the choice) of the wronged party. Where the wronged party elects to have the contract declared void, both parties will be restored to their original positions as if the contract had not been entered into. This may require a court to order monetary adjustments or restitution. While it is arguable that duress is a tort that gives rise to a right to damages, this is not entirely clear. However, duress is likely to be a contravention of various provisions of the ACL where it is done ‘in trade or commerce’. This includes unconscionable conduct under sections 20, 21 and 22 of the ACL, which would give rise to a range of more flexible remedies, including rescission and damages. (See also ‘Unconscionable conduct’ in Chapter 7.2: Consumer protection laws.) Undue influence or unconscionability Proper consent may be affected by undue influence. Undue influence is exercised by taking unfair and improper advantage of the weakness of another party, to the extent that it cannot be said that the other party voluntarily entered into a contract. The main reason for the rule against the use of undue influence is to correct abuses of trust and confidence. It is applied where the parties are in a relationship where one party may be able to exercise considerable influence over the other party. There are two categories of undue influence. The first is where no special relationship exists, but the stronger party has exerted dominance and influence over the weaker party. The weaker party has to prove that undue influence has been exerted. The second category of undue influence is where the parties are in a special relationship of confidence; most cases of undue influence fall into this category. Such a relationship exists when one party’s position towards the other’s position involves a dependency or trust, in the form of authority or an expectation to give fair and independent advice to the weaker party. Where a special relationship is found to exist, a presumption of undue influence will arise. It is then necessary for the stronger party to show that the contract was not the result of any undue influence. This could be shown by, for example, the weaker party obtaining independent advice before entering into the contract. A special relationship of confidence and the presumption of undue influence can be established in two ways. First, the parties may be in a well-recognised special relationship; for example, solicitor and client, doctor and patient, parent and child, guardian and ward, and religious or spiritual adviser and devotee.