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TABL 1710

Business and the Law

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

Lecture 5
Contract Law (Contd)
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

MAJOR ASSIGNMENT

MAJOR ASSIGNMENT

Research materials:
Your starting point:
- Reading materials on Moodle (PDFs)
- Paul Latimers Australian Business Law, 2015 (or 2014 or
2013 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 UNSW
Library database
Focus your research on ONLINE materials
Do NOT bother the UNSW librarians unnecessarily

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 to
submit your Assignment
ONLINE SUBMISSION ONLY
- On Moodle (via Turnitin)
- Check your plagiarism score, amend and re-submit as
required

USE THE FIVE STEP PLAN

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

Identify relevant facts

Identify key, relevant statutory provisions and case law


principles

What are the main problems in the problem?


What key issues do these facts raise?

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 articles
etc about these legal principles?

Note similarities to (follow) or differences from (distinguish)


prior cases
Apply the relevant statutory provisions and case law principles
to the facts
Reach a conclusion based on the application of the statutory
provisions and case law principles to the facts

How to answer a legal problem

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!

Remember:
In your discussion/answer, you must include
references to relevant statutory provisions
(legislation name and, where possible, section
numbers) and case names

Legal Research

Legal Research

1.

Primary resources - cases and legislation

Always rely on primary resources, and use secondary


resources to support your argument.

2.

Secondary sources (journals, textbooks,


commentaries, annotators)

Refer to UNSW library electronic database

Legal encyclopedias
-

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


of
Australia (LBC)

Hard copies of legal resources are also available in


the UNSW Law School Library

Textbooks
Journals
Commentaries/loose-leaf services
Statute annotators

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Legal Research

Useful Legal Websites

For the Assignment, also refer to:

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

RESEARCH GUIDANCE NOTES ON Moodle,


UNDER ASSESSMENTS
APPENDIX A - Style Guide and Written
Submission Guidelines in Part B of the Course
Outline

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Lecture 3: Summary

Lecture 3: Summary

Essential elements of a contract:

Intention to enter into a legally binding contract

Agreement
Offer
Acceptance

Consideration

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)

Something of value (price)


Exception: Promissory Estoppel

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Lecture 4: Summary

Todays lecture

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

Exclusion clauses
Collateral contracts
Requirements for a valid contract (contd)

Privity of contract

Capacity
Consent
Proper form
Agency: the exception to Privity

Vitiating elements

Mistake
Misrepresentation
Illegality
Inequality between the parties
Unconscionable conduct (Commercial Bank v Amadio)

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Overview - Lecture 5

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Exclusion clauses

Capacity/Privity/Vitiating Elements
On completion of this lecture you should be
able to:
9 Identify and explain what exclusion clauses are
9 Understand what collateral contracts are
9 Explain what it means to have capacity (or to
consent) to enter into contractual relations
9 Explain the doctrine of privity of contract and the
concept of agency
9 Identify different vitiating elements and their effect on
a contract (eg mistake, misrepresentation,
unconscionable conduct etc)
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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
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Exclusion clauses

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

BE CAREFULyou 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: LEstrange v Graucob Ltd
See Latimer at 6-190

Olley v Marlborough Court Ltd


Balmain New Ferry Co Ltd v Robertson

See Latimer at 6-220


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Exclusion clauses

Exclusion clauses
How to interpret 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
See Latimer at 6-200

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
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Exclusion clauses

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Terms and collateral contracts

Statutory modifications

Collateral contract: a promise in the main


contract that gives rise to a separate contract

Some statutory provisions may render an


exclusion/exemption clause ineffective,
particularly legislation dealing with:
Consumer Protection

This promise is NOT a term of the main


contract; it has an independent existence to
the main contract

Insurance

It co-exists side by side with the main contract

See Latimer at 6-250


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Collateral contracts

Changing the terms of a contract

Example:
In consideration of the manufacturers 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: manufacturers contractual
promise to retailer

Terms of an existing contract may be changed by:


Completely discharging existing contract and substituting
with new contract.
Leaving existing contract in place but adding new terms or
changing some of the terms: BUT this can only happen with
the full agreement of all the parties.

See Latimer at 6-250

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Capacity

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Capacity
Classes of persons subject to incapacity:
Minors
Mentally ill
Intoxicated
Corporations/companies
See Latimer at 5-510 to 5-570

Presumption that everyone has full legal


capacity
Lack of capacity will invalidate the contract

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Consent

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Proper Form
Consider - are there any statutory procedural
requirements that need to be satisfied?

Is there genuine consent?


Ask what have the parties agreed to?

A lack of compliance with the required formalities


may make the contract void or unenforceable

There must be genuine agreement between


the parties to a contract as to its nature and
scope

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Privity of contract

Agency
Exception to doctrine of privity

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

An agent: person who is authorised to enter into


contracts on behalf of another person, called the
principal
The contract is between the principal and the third
party, and is generally not enforceable against the
agent

See Latimer at 6-260

Doctrine of privity not relevant in agency situation


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Principal P

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)

grant of
authority

The contractual
relationship

Agent A

negotiates
contract on
behalf of P
Third Party TP

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Agency: how it is created

Agency: some examples

By agreement (express or implied)


By operation of law under the doctrine
of agency of necessity
Retrospectively by ratification of the agents acts
done on behalf of the principal but without prior grant
of authority

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Real estate agent


Travel agent
Insurance broker
Share broker

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Agency

Vitiating elements
Vitiate means:
to corrupt
to damage
to reduce value
Vitiating elements include:
Mistake
Misrepresentation
Illegality
Inequality between the parties

Cases:
Powell v Lee: see Latimer at 5-310
Dickinson v Dodds: see Latimer at 5-360

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Voidable vs void

Vitiating elements
A vitiating factor operates to render a contract
voidable or void retrospectively (ie void ab
initio)

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)

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Mistake

Types of mistake

If a mistake operates, it often renders a contract void


ab initio (from the very beginning)

Common mistake: both parties make the same


mistake as to the existence or identity of the subject
matter

Places the parties in the same position as if no


contract had ever been made

Mutual mistake: parties are at cross-purposes


both parties have made a mistake but each party
has made a different mistake
Unilateral mistake: only one of the parties is
mistaken, and the other is, or should be, aware of
this and does nothing to correct the mistake
See Latimer at 5-620 to 5-695
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Representation

Misrepresentation

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

In contract
In tort
Misrepresentation legislation
Australian Consumer Law

See Latimer at 5-700

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Misrepresentation

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Misrepresentation
Minor misrepresentation:

Statement of fact
Communicated to another
An inducement

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

See Latimer at 5-701

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Misrepresentation

Misrepresentation and legislation

Fraudulent Misrepresentation:
intention to induce a person to enter into a contract

Australian Consumer Law, see Schedule 2 to


the Competition and Consumer Act, 2010
(Cth)

voidable: rescission (and/or damages)

Innocent Misrepresentation:
misstatement of a material fact
lack of intentional deceit

s 18: misleading or deceptive conduct

not known to be false


rescission

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s 29: false representations

Negligent Misrepresentation:
statement made innocently but carelessly
right to damages

See Latimer at 5-705 at section (3)

See Latimer at 5-702


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Illegal contracts

Examples of Illegal Contracts


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

Contracts will be illegal if they involve illegal


conduct

Contracts that are immoral

Contracts can be illegal or void:

Contracts to the prejudice of public safety, or of good relations with


other countries

- by statute
or

Contracts prejudicial to the administration of justice

- at common law

Contracts which tend to promote corruption in public life:


Contracts to defraud the revenue
Contracts that involve a breach of duty

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Inequality between the parties

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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

Duress
Undue influence
Unconscionable conduct
Statute law dealing with unfairness or
unconscionability:

Lack of voluntary agreement

Australian Consumer Law, see Sch 2 to Competition and


Consumer Act 2010 (Cth)

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Duress

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Undue influence

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

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

Economic duress
Economic pressure beyond normal acceptable
commercial practice
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Unconscionable or Unfair Contracts

Unconscionable 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
See Latimer at 5-730

The plaintiff has to establish:


They were in a position of special disability or
special disadvantage
That substantially affected their ability to protect
themselves
The defendant knew, or ought to have known, of
the plaintiffs disability/disadvantage and should not
have taken advantage of it
AND
The actions of defendant were unconscionable

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MID-SEMESTER BREAK

Unconscionable contracts
Examples of special disability/special
disadvantage include:
age
financial needs
illness
ignorance
inexperience
inability to understand the language
inability to read

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

See Latimer at 5-730


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Next lecture (Week 6)

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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
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