Even though a contract may be created in the sense of compliance with the elements of agreement, consideration, intention and certainty, courts have the power to set it aside where there is evidence that it was entered into without the genuine consent of one or both of the parties. In such cases it is said that the contract has been vitiated or spoiled by the lack of consent. The general law, and at times statute law, has recognised categories of cases that will allow for the rescission of a contract due to one or more vitiating factors. Where rescission is not available, there may be remedies in tort and under statute.

A misrepresentation is a false statement about a fact that is material to the contract. If established, it makes a contract voidable at the hands of the innocent party and allows for rescission. At common law, one needs to prove:

• the statement was about a material fact;

• that it was false; and

• that it was intended to induce, and in fact did induce, the other party into the contract.

Alternatives to an action for misrepresentation may possibly be available by avoiding the law of contract and relying on the torts of deceit and negligence.

Most acts that amount to misrepresentation will also be actionable under the Australian Consumer Law (Sch 2 of the Competition and Consumer Act 2010 (Cth)), especially those that amount to misleading or deceptive conduct. The range of conduct caught by s 18 of the Australian Consumer Law is very wide and covers statements and other acts in individual transactions as well as those addressed to the public at large.

See Misrepresentation.

Where parties have failed to understand each other and are at cross-purposes, despite the formal presence of agreement, the contract may be vitiated and rescinded on the grounds of mistake. There are four fundamental classes or forms of mistake that have been entrenched in the common law.

Common mistake is where parties enter into a contract mistaken about a material fact or issue of law that is essential to the contract. Recognised exceptions are where the mistake is about an attribute of the contract’s subject matter, such as its quality or value and where one of the parties has induced the other into the mistake. Where a contract is not able to be vitiated because of an exception or other issue, equitable relief may be available.

Mutual mistake is where the parties make their own mistakes about a material fact or issue of law.

Unilateral mistake is where one of the parties makes a mistake about a material fact or a matter of law and the other party knows or is deemed to know about the mistake. Cases such as these have often involved unilateral mistake about the terms of the contract, or about the identity of one of the parties (where identity is an issue).

Finally, a party with a disability who is labouring under a unilateral mistake as to the nature of the document they have executed may be able to raise the defence of non est factum in relation to any action taken against them to enforce the contract. Non est factum is a plea by a person who seeks to disown a contract which it is alleged he or she sealed or signed, but the mind of the signer did not accompany the signature.

See Mistake.

Duress is concerned with pressure or coercion by one party over the other. Where duress is used as grounds to seek rescission of a contract, courts have to deal with the question of how much coercion or pressure is required before the contract is held to be vitiated. A court is likely to apply two questions to addressing an argument of duress: first, whether any pressure induced the victim to enter into the contract, and if so, whether that pressure went beyond what the law is prepared to consider legitimate? Once illegitimate pressure is established the onus of proof shifts to the defendant who must show that any duress had no impact on the plaintiff’s decision to enter into the contract. Courts have recognised duress as a vitiating factor that is exacted against one’s person, one’s goods and also one‘s economic or financial interests.

See Duress.

The equitable doctrine of undue influence provides for contracts to be set aside if the nature of the personal relationship between the parties has somehow impaired the quality of consent given, so that one party dominates over the other party to the point of inequality, unfairness, abuse of trust or even actual abuse. Undue influence is mostly relevant where there is an existing antecedent relationship between the contracting parties. There are two main ways in which undue influence may be established:

• where there is actual undue influence on the facts; and

• where undue influence is presumed by law.

Cases in which it is argued that undue influence may be presumed on the facts of the case have commonly been decided on grounds of unconscionability. See Unconscionable transactions. Where undue influence is presumed by law, the contract is voidable unless the presumption is rebutted. This may be the case where there is a “special relationship” recognised by law or where the facts of the case establish a relationship of undue influence. Once the relationship of undue influence is established (whether by presumption or on the facts), it is then presumed the contractual transaction was tainted by undue influence. This renders the transaction voidable unless the presumption is rebutted by the stronger party, who needs to show the “influenced” party was emancipated from the influence of the stronger party.

Courts have also accepted actions to set aside contracts where one of the parties has been unduly influenced by a third party (such as a spouse) and the other party to the contract has had actual or constructive knowledge of the influence and has failed to take precautions to ensure genuine consent from the influenced party.

See Undue influence.

Contracts may be set aside on the grounds of unconscionability, which is an equitable doctrine that provides for relief to be granted where one party to a transaction engages in abuse of power and unfairly takes advantage of the weakness of the other party. Under the general law, a court will require evidence of a special disadvantage or disability in the weaker party, knowledge of the disability on the part of the stronger party and exploitation in the sense of unfair advantage and benefit flowing to the stronger party. Independent advice to the weaker party may counter any unconscionability.

Unconscionability is an important vitiating factor that has gained favour in modern times and has been expanded and entrenched in statute law as well. The Australian Consumer Law makes special provision for the setting aside of contracts, and other remedies, where conduct is unconscionable in terms of the general law or in transactions involving consumers and business consumers.

See Unconscionable transactions.