Contract Law

Vitiating Factors

General Principles

Vitiation means to make a contract void. When a contract is said to be vitiated it is due to certain factors fundamental to its formation being absent. It does not operate as a technicality, but rather when there is unfairness involved in the formation and the terms of the contract. In effect there was never any contract in the first place.

The contract can be terminated and all that has passed between the parties has to be returned. At very least any wrongful gain must be restored. This author would suggest that it is important to act without needless delay when gross and unfair advantage is found to have been taken, because where such is knowingly tolerated and the contract goes on and on, you are signifying that you accept the unfairness and are affirming the contract. Nevertheless if you form a contract with someone it is wise to ensure they are not the type of person who would attract a ruling to vitiate. (A contract of sale or lease, rather than service or employment is of relevance here).

 

Vitiating factors include…

 

  • Misleading and deceptive conduct

  • Mistake as to terms

  • Abuse of power

  • Unconscionable conduct

Misleading or Deceptive Conduct

Misleading or Deceptive Conduct is a very well known law. Misleading a customer is caught by statutory law, even if also by various case law. Section 18 of the Australian Consumer Law.[1] The basic principle of it is that it is unlawful if a person is mislead (by passively allowing misapprehension) or deceived (by actively causing error in judgement) to induce formation of a contract. In addition to the annulment of a contract there are other penalties imposed by government.

 

Originally it was known as "Misleading and Deceptive Conduct" but the name was changed to reflect a fine technical point in that the conduct (or assertion) complained of need be both misleading and deceptive at once. The definition is accordingly treated very expansively by courts, covering statements and actions, whether there is a valid contract or not, as long as it is fraudulent in some way and in pursuit of commerce. This is because in practice many acts or omissions involve communication of some sort. Silence is still considered a form of conduct capable of misleading, when known mistakes are not corrected. Intentions do not matter. Misleading by error is illegal, even when you’re being honest and reasonable.

[1] Competition and Consumer Act 2010 (Cth) See Schedule 2, Australian Consumer Law.