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Contract and Commercial Law: Duty to Disclose Material Facts to the Other Party

Thursday, 3 May 2012

Contractual negotiations can provide parties with plenty of contentious material for subsequent litigation if relationships sour. One of two litigious approaches is usually taken when commercial relationships become strained: claims for breach of contract or claims for misrepresentation.

It is somewhat intuitive that active and explicit misrepresentations can leave a party open to claims for damages. A concept that is less considered is the potential for silence, or non-disclosures, to lead to a successful misrepresentation claim.

General Guidelines

In accordance with the principle of 'caveat emptor' (buyer beware) there is no general duty for parties to disclose material facts during contractual negotiations. Nor will a simple non-disclosure be considered misrepresentation; the law does not expect contracting parties to lay all their cards on the table.

Exceptions to the Rule

There are a number of specific exceptions to the general rule that no duty of disclosure exists. These fall into four basic categories:

  1. Where a statutory duty of disclosure exists;
  2. Non-disclosure in contracts classed as uberrimae fidei (utmost good faith) such as insurance contracts where certain details are expected to be revealed under the contract (previous refusals of insurance for example);
  3. Non-disclosure where there is a fiduciary relationship between the parties such as a partnership; or
  4. Where non-disclosure of material fact distorts a positive representation.

More generally, dishonest non-disclosure may also be deemed misrepresentation in some circumstances.

Misrepresentation Following Non-disclosure

While the above categories of actionable non-disclosure are generally accepted there are one or two other areas where contracting parties should take note.

If goods are being sold whereby known defects have been hidden from a prospective buyer then there is potential for misrepresentation to take place. 'Papering over the cracks' type cases are a grey area however because it is not necessarily unexpected that the seller of a property or a car, for example, is likely to tidy up its appearance before trying to sell, particularly if repairs are actually required.

Another possibility for misrepresentation is where partial non-disclosures undermine the validity of a true statement. That something is literally true does not prevent it from being misleading to the point where it distorts the truth. For example the statement that a cleaner's liability exclusion policy excludes damage to beads and sequins when, in fact, it excludes all liability has been construed as a misrepresentation, Curtis v Chemical Cleaning [1951].

If you need help with contractual negotiations or disputes, Rollingsons has experienced lawyers who can assist you; for more information please contact James Crighton ( via e-mail or by telephone on 0207 611 4848.