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What Is An Avoidance Order?

What Is An Avoidance Order?

Have you entered a contract and realised something was not quite right? You may be able to obtain an avoidance order and end the contract.

29th July 2021
Reading Time: 3 minutes

Have you entered into a contract and realised there may have been some unfair or unconscionable conduct occurring? Do you want to avoid a contract because you believe you’ve been mislead or unduly influenced? This can be stressful to experience. However, do not fear, you do have options. You can apply for an avoidance order and in effect, avoid the contract.

Avoidance Orders

‘Avoidance’ is to avoid something and an ‘order’ simply refers to a court order. In general, when we are speaking about avoidance orders, we are speaking about contracts and agreements. Thus, an avoidance order is an order to lawfully cancel or exit a validly formed contract. Generally, you cannot avoid a contract simply because you don’t want to live up to its terms anymore. There must be a valid reason. These valid reasons are also called “vitiating factors”. These vitiating factors include:

  • Misleading or deceptive conduct,
  • Mistake,
  • Duress,
  • Undue Influence,
  • Unconscionable conduct, and,
  • Illegality.

Misleading or Deceptive Conduct

This is one of the most popular reasons someone may want to apply for an avoidance order. Importantly, the misrepresentation must have occurred before entering the contract. In other words, it must be a pre-contractual misrepresentation. If your contract covers commercial activity, it is likely you will want to avoid the contract under section 18 of the Competition and Consumer Act 2010 (Cth). Section 18 states that “a person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive“.

For the conduct to be “misleading or deceptive, or likely to mislead or deceive” it must be conduct that will actually mislead or deceive someone. Conduct that will mislead or likely deceive may include:

  • False advertising or bait advertising used to misrepresent a companies products or prices,
  • Pricing errors,
  • Silence and withholding information, and many more.

In order to be successful in your misleading conduct claim you must show that you relied on the other parties misleading conduct, and that reliance caused your loss. To learn more about misleading and deceptive conduct, take a look at our article, “What is Misleading and Deceptive Conduct?”.

Mistake

Mistake sounds simple, but it is possibly one of the most complex reasons to avoid a contract. This is because not all mistakes will allow you to avoid your contract. The following types of mistakes may give rise to an avoidance order:

  • Common Mistake: A common mistake happens when both parties become mistaken about the same thing.
  • Mutual Mistake: Mutual mistakes occurs when both parties become mistaken about different things.
  • Unilateral Mistake: Unilateral mistake occurs when one party becomes mistaken about some aspect of the contract but the other is not.

It is important to note that the mistake must be significant and strike to the fundamental elements of the contract.

Duress

Duress is the act of illegitimate and threatening behaviour to pressure the weaker party into signing or accepting the contract. The duress must cause the weaker party to enter into the contract. This covers very extreme circumstances such as: death threats, physical force, harassment, coercion and threats of harm to property.

Undue Influence

When an inequality of power is present between the contracting parties which influences the weaker party to enter the contract, is it likely that undue influence has occurred. Undue influence can take two forms:

  • Express or actual undue influence: Actual undue influence arises when a contract results from some unfair or inappropriate pressure and the weaker party is unable to make any independent judgement of their own. This can overlap with duress.
  • Presumed undue influence: This is where the relationship between the parties gives rise to undue influence. This presumption arises in relationships such as: parent and child, guardian and ward, physician and patient, and many more.

However, just because there is some undue influence, does not mean that the court will grant an avoidance order. The influence must be ‘undue’ or inappropriate.

Unconscionable Conduct

Unconscionable conduct overlaps with both duress and undue influence. However, it usually involves the stronger party taking advantage of the weaker parties ‘special disability’. The special disability may include: age, lack of education and illiteracy. It must be obvious that the stronger party knew of the weaker parties special disability. Thus, the stronger party must have taken an unfair advantage over the weaker parties condition.

Illegality

If some party acts in an illegal way, the contract may be avoided. Illegality includes criminal acts. It can also include any act that is prohibited by legislation. For example, a contract to pay A $2 million to kill B is clearly an illegal contract. However, there are situations where the illegal conduct is harder to spot. This usually occurs where completely valid and legal contracts are performed illegally. For instance, B builds a house for A, yet B does not stick to the legal rules, regulations of compliance guidelines while conducting the build.

Key Takeaways

There are many ways the courts may grant an avoidance order and therefore immediately end a contract. Once the contract has been avoided, you are under no legal obligation to perform the contract. Avoidance can be obtained in a variety of ways, usually referred to as ‘vitiating factors’. These vitiating factors include conduct that is misleading and deceptive, mistakes, duress, undue influence, unconscionable conduct and illegality. If you feel you have entered a contract under one of these vitiating factors, our solicitors are here to help.

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Author
Mai Sarkissian

Mai is a Digital Marketing Coordinator at Lawpath, working as part of the Content Team. She is in her final year of a Bachelor of Laws degree at the University of Wollongong. She is interested in Business Law and Employment Law.