tabl1710 lecture wk5 - exclusion clauses, capacity, privity, vitiating elements

7/18/2019 TABL1710 Lecture Wk5 - Exclusion Clauses, Capacity, Privity, Vitiating Elements

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TABL 1710

Business and the Law

Lecture 5

Contract Law (Cont’d)

Exclusion Clauses/Capacity/Privity/

Vitiating elements

Lecturer: Mr Paul Tuohy©2015 The University of New South Wales

Sydney 2052 Australia

The original material prepared for this guide is copyright. Apart from fair dealing for the purposes of private study, research, criticism or

review, as permitted under the Copyright Act, no part may be reproduced by any process without written permission.

Enquiries should be addressed to the Head of School, Taxation and Business Law, UNSW, Sydney

2

In-Class Exercise

on Lecture Topics 1 and 2

• PLEASE SPEAK TO YOUR TUTOR IF YOU

MISSED THE IN-CLASS EXERCISE LAST

WEEK

• Worth 10% of your mark

33

MAJOR ASSIGNMENT

• On Moodle

Contract law, problem question

See Guidelines to Students (attached to the assignment)

• DUE Monday 4 May by 5pm (beginning of Week 9)

See Course Outline (paragraph 4.4) for details about how tosubmit your Assignment

ONLINE SUBMISSION ONLY

- On Moodle (via Turnitin)

- Check your plagiarism score, amend and re-submit asrequired

44

MAJOR ASSIGNMENT

• Research materials:

Your starting point:

- Reading materials on Moodle (PDFs)

- Paul Latimer’s Australian Business Law , 2015 (or 2014 or2013 edns – BUT NOT earlier than 2013)

Do some independent research – beyond the Moodle

readings and beyond the textbook using other research tools:

• Look for Cases/Journal articles/Other materials from legal

publishers that are available online through UNSWLibrary database

• Focus your research on ONLINE materials• Do NOT bother the UNSW librarians unnecessarily

55

MAJOR ASSIGNMENT

• Do not plagiarise – be careful to acknowledge all

source materials that you use

• References source materials appropriately: see

Appendix A of the Course Outline for how to footnote

your references

• Provide full names for cases AND full case citations

• Include a bibliography at the end of your

Assignment

6

USE THE FIVE STEP PLAN

• Identify relevant facts

What are the main problems in the problem?

What key issues do these facts raise?

• Identify key, relevant statutory provisions and case lawprinciples

What legal principles apply to the facts you have identified?

What relevant cases do you know that deal with these legal principles?

What additional research can you do to find other cases/journal articlesetc about these legal principles?

• Note similarities to (follow) or differences from (distinguish)prior cases

• Apply the relevant statutory provisions and case law principlesto the facts

• Reach a conclusion based on the application of the statutoryprovisions and case law principles to the facts



77

How to answer a legal problem

• Remember:

In your discussion/answer, you must include

references to relevant statutory provisions

(legislation name and, where possible, section

numbers) and case names

8

Sample Answer

• On Moodle

• THIS IS A GUIDE for FORMAT AND STYLE OF

WRITING ONLY

• DO NOT COPY the content of the sample answer –

the facts are completely different from your

assignment problem!

9 9

Legal Research

1. Primary resources - cases and legislation

2. Secondary sources (journals, textbooks,commentaries, annotators) Legal encyclopedias

- eg: Halsbury's Laws of Australia (Butterworths); the Lawsof

Australia (LBC)

Textbooks

Journals Commentaries/loose-leaf services Statute annotators

10 1

Legal Research

• Always rely on primary resources, and use secondaryresources to support your argument.

• Refer to UNSW library electronic database

• Hard copies of legal resources are also available inthe UNSW Law School Library

11

Legal Research

• For the Assignment, also refer to:

RESEARCH GUIDANCE NOTES ON Moodle,UNDER ASSESSMENTS

APPENDIX A - Style Guide and WrittenSubmission Guidelines in Part B of the CourseOutline

12 1

Useful Legal Websites

• The Library Website and the Law subject guide has links to:

Legal encyclopedias;

Law Reports; Legal Journals;

Commentaries & loose-leaf services

• Other useful websites:

www.austlii.edu.au www.comlaw.gov.au

www.lawlink.nsw.gov.au

www.fedcourt.gov.au/legalinks/links.html



1313

Lecture 3: Summary

Essential elements of a contract:

• Intention to enter into a legally binding contract

• “Agreement”

Offer

Acceptance

• Consideration

Something of value (price)

Exception: Promissory Estoppel

1414

Lecture 3: Summary

Other elements for a valid contract:

• Legal capacity

• Genuine consent

• Legality of purpose

• Any formal/procedural requirements must be satisfied

(See Latimer at ¶5-510 to 5-570)

1515

Lecture 4: Summary

Intention to create legal relations Social/family/domestic/voluntary

Commercial/business

Intention determined objectively depending on all the facts(ie: parties' words/ conduct and surrounding circumstances)

Terms of a contract Representation:

- Pre-contractual negotiations

Terms

- Express/Implied- Condition/Warranty

- Uncertain/Meaningless/Ambiguous terms

1616

Today’s lecture

• Exclusion clauses

• Collateral contracts

• Requirements for a valid contract (cont’d)

Capacity

Consent

Proper form

• Privity of contract

Agency: the exception to Privity

• Vitiating elements

Mistake

Misrepresentation

Illegality

Inequality between the parties

Unconscionable conduct (Commercial Bank v Amadio)

1717

Overview - Lecture 5Capacity/Privity/Vitiating Elements

On completion of this lecture you should be

able to:

Identify and explain what exclusion clauses are

Understand what collateral contracts are

Explain what it means to have ‘capacity’ (or toconsent) to enter into contractual relations

Explain the doctrine of privity of contract and theconcept of “agency”

Identify different vitiating elements and their effect ona contract (eg mistake, misrepresentation,unconscionable conduct etc)

181818

Exclusion clauses

• Also known as exception or exemption clauses or ‘no

liability’ clauses

• Their purpose is exclude or limit the liability of the

person inserting them

• Their effectiveness will depend on the construction

of the contract as a whole, taking into account the

bargaining position of the parties

See Latimer at ¶6-180 to ¶6-250



191919

Exclusion clauses

• Notice of exclusion clause must be given BEFORE or

AT THE TIME the contract is made (not afterward)

Cases:

Thompson v London, Midland & Scottish Railway Co

eBay International AG v Creative Festival Entertainment Pty Ltd

See Latimer at ¶6-210

Olley v Marlborough Court Ltd

Balmain New Ferry Co Ltd v Robertson


202020

Exclusion clauses

• BE CAREFUL…you are bound by what you sign,

even if you do not know what you have signed

• READ what you sign BEFORE you sign it

• Signing = evidence you intend to be bound!

Case: L’Estrange v Graucob Ltd


212121

Exclusion clauses

• Terms, including exclusion clauses, may not be

binding unless properly incorporated into a contract

Cases:

Parker v South Eastern Railway Co

Curtis v Chemical Cleaning and Dyeing Co

Causer v Browne


222222

Exclusion clauses

• How to interpret exclusion clauses:

The negligence rule

The ambiguity rule (or the contra proferentem rule):

The ‘four corners’ rule

Look at what the main contract says

Cases:

White v John Warwick & Co Ltd

Bright v Sampson and Duncan Enterprises Pty Ltd

Sydney County Council v West Thomas National Transport (Melb) Pty Ltd v May & Baker (Aust) Pty Ltd

Darlington Futures Ltd v Delco Australia Pty Ltd

See Latimer ¶6-240

232323

Exclusion clauses

Statutory modifications

• Some statutory provisions may render an

exclusion/exemption clause ineffective,

particularly legislation dealing with:

Consumer Protection

Insurance


242424

Terms and collateral contracts

• Collateral contract: a promise in the main

contract that gives rise to a separate contract

• This promise is NOT a term of the main

contract; it has an independent existence to

the main contract

• It co-exists side by side with the main contract



252525

Collateral contracts

Example:

In consideration of the manufacturer’s promise

that his product will do X

You (the customer) will contract with the retailer to

buy it

• Main contract: between you and the retailer

• Collateral contract: manufacturer’s contractualpromise to retailer

2626

Changing the terms of a contract

• Terms of an existing contract may be changed by:

Completely discharging existing contract and substitutingwith new contract.

Leaving existing contract in place but adding new terms orchanging some of the terms: BUT this can only happen with

the full agreement of all the parties.


2727

Capacity

• Presumption that everyone has full legal

capacity

• Lack of capacity will invalidate the contract

2828

Capacity

Classes of persons subject to incapacity:

• Minors

• Mentally ill

• Intoxicated

• Corporations/companies


2929

Consent

Is there genuine consent?

• Ask “what have the parties agreed to?”

• There must be genuine agreement between

the parties to a contract as to its nature and

scope

3030

Proper Form

• Consider - are there any statutory procedural

requirements that need to be satisfied?

• A lack of compliance with the required formalities

may make the contract void or unenforceable



3131

Privity of contract

• Means ‘part of’

• Only a party to the contract has any rights under the

contract

• Similarly, the contract only imposes obligations on

the parties to the contract

• Case: Beswick v Beswick


3232

Agency

Exception to doctrine of privity

• An agent: person who is authorised to enter intocontracts on behalf of another person, called theprincipal

• The contract is between the principal and the third

party, and is generally not enforceable against theagent

• Doctrine of privity not relevant in agency situation

3333

Agency: definition

The legal relationship between one person, the AGENT

(“A”) having authority to act, and having consented to

act on behalf of another person, the Principal (“P”),

places the Principal in a contractual relationship with a

Third Party (“TP”)

3434

Principal P grant of

authority

Agent A

Third Party TP

negotiates

contract on

behalf of P

The contractual

relationship

3535

Agency: how it is created

• By agreement (express or implied)

• By operation of law under the doctrine

of agency of necessity

• Retrospectively by ratification of the agent’s acts

done on behalf of the principal but without prior grant

of authority

36

Agency: some examples

• Real estate agent

• Travel agent

• Insurance broker

• Share broker



Agency

Cases:

Powell v Lee: see Latimer at ¶5-310

Dickinson v Dodds: see Latimer at ¶5-360

3838

Vitiating elements

• ‘Vitiate’ means:

to corrupt

to damage

to reduce value

• Vitiating elements include:

Mistake

Misrepresentation Illegality


3939

Vitiating elements

• A vitiating factor operates to render a contract

voidable or void retrospectively (ie void ab

initio)

4040

Voidable vs void

If a contract is “bad” because of a vitiating

element, it can be:

• VOIDABLE: the contract will continue on foot unless

the injured party elects to rescind (ie cancel) or avoid

the contract

or

• VOID: void back to the moment of formation, as if it

never existed (void ab initio)

4141

Mistake

• If a mistake operates, it often renders a contract void

ab initio (from the very beginning)

• Places the parties in the same position as if no

contract had ever been made

4242

Types of mistake

• Common mistake: both parties make the samemistake as to the existence or identity of the subjectmatter

• Mutual mistake: parties are at cross-purposes –both parties have made a mistake but each partyhas made a different mistake

• Unilateral mistake: only one of the parties ismistaken, and the other is, or should be, aware ofthis and does nothing to correct the mistake




4343

Representation

A representation is a statement of fact made

by one party to another, either before or at the

time of contracting, relating to an existing fact

or a past event, which induces the contract

44

Misrepresentation

• In contract

• In tort

• Misrepresentation legislation

Australian Consumer Law


45

Misrepresentation

• Statement of fact

• Communicated to another

• An inducement

46

Misrepresentation

• Minor misrepresentation: “non-contractual” or “mere” misrepresentation

no remedy for breach of contract but may be remedies under

other heads of law (such as tort/Australian Consumer Law)

• Major misrepresentation: “Actionable” misrepresentation

“Voidable”: allows innocent party to cancel/rescind the contract


47

Misrepresentation

• Fraudulent Misrepresentation:

intention to induce a person to enter into a contract

“voidable”: rescission (and/or damages)

• Innocent Misrepresentation:

misstatement of a material fact

lack of intentional deceit

not known to be false

rescission

• Negligent Misrepresentation:

statement made innocently but carelessly

right to damages


4848

Misrepresentation and legislation

• Australian Consumer Law , see Schedule 2 to

the Competition and Consumer Act, 2010

(Cth)

• s 18: misleading or deceptive conduct

s 29: false representations

See Latimer at ¶5-705 at section (3)



4949

Illegal contracts

• Contracts will be illegal if they involve illegal

conduct

• Contracts can be illegal or void:

- by statute

or- at common law

5050

Examples of Illegal Contracts

• Contracts to commit a crime, a tort or a fraud on a third party

• Contracts that are immoral

• Contracts to the prejudice of public safety, or of good relations witother countries

• Contracts prejudicial to the administration of justice

• Contracts which tend to promote corruption in public life: Contracts to defraud the revenue

Contracts that involve a breach of duty

5151


• Duress

• Undue influence

• Unconscionable conduct

• Statute law dealing with unfairness or

unconscionability: Australian Consumer Law , see Sch 2 to Competition and

Consumer Act 2010 (Cth)

5252

Duress

• Duress involves use of violence or illegal threats

against a person, their goods or economic interest to

force them to enter into a contract against their will

• Lack of voluntary agreement

5353

Duress

• To the person

Actual or threatened violence to one contracting party, or

their immediate family or near relatives

• To goods

Wrongful threats to seize, damage or destroy the goods

of one contracting party

• Economic duress

Economic pressure beyond normal acceptablecommercial practice

5454

Undue influence

• Involves the improper use of a position of influence or

power possessed by one person over another in

order to induce that other person to act for their

benefit

• Lack of genuine consent to the agreement



5555

Unconscionable or Unfair Contracts

• Contract will be set aside as unconscionable (unfair)

where the defendant has abused their superior

bargaining position in their dealings with the plaintiff

Case: Commercial Bank of Australia v Amadio


5656

Unconscionable contracts

The plaintiff has to establish:

• They were in a position of ‘special disability’ or‘special disadvantage’

• That substantially affected their ability to protectthemselves

• The defendant knew, or ought to have known, of

the plaintiff’s disability/disadvantage and should nothave taken advantage of it

AND

• The actions of defendant were unconscionable

57

Unconscionable contracts

• Examples of ‘special disability’/‘specialdisadvantage’ include:

age

financial needs

illness

ignorance

inexperience

inability to understand the language

inability to read


MID-SEMESTER BREAK

• NO CLASSES FROM 3-12 April (inclusive)

• Classes resume on Monday 13 April (ie: Week 6)

• Week 6 lectures for TABL 1710:

Tuesday 14 April

Thursday 16 April

Next lecture (Week 6)

• Restraint of trade clauses

• Breach of contract

• Termination for breach

• Remedies for breach of contract

• Read: Latimer Ch 6 ¶6-280- ¶6-510

REMEMBER: THE MAJOR ASSIGNMENT IS

NOW ON MOODLE

tabl1710 lecture wk5 - exclusion clauses, capacity, privity, vitiating elements

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