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CHAPTER 2

THE WEAPONS OF LAW

2.3.4The Duty to Disclose and Silence as a Misrepresentation
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The general rule is that mere silence is not misrepresentation. 'The failure to disclose a material fact which might influence the mind of a prudent contractor does not give the right to avoid the contract' even though it is obvious that the contractor has a wrong impression that would be removed by disclosure.92


There are, however, at least three sets of circumstances in which silence or non-disclosure affords a ground for relief for the aggrieved party.92A

These are:

(a)

Where a Fiduciary Relationship exists between the contracting parties (or, as in the circumstances related below, Where a Special Relationship exists between the contracting parties).

(b)

Where the Silence Distorts a Positive Representation.

(c)

Where the Contract requires Uberimma Fides (the Utmost Good Faith).


Again, the categorisation of the misrepresentation may be fraudulent or negligent; and, while, historically, silence has not been deemed to constitute a statutory misrepresentation, this exclusion, in circumstances where the silence has the equivalence of an implied statement, has long been seen to be open to question (this will be discussed in Section 2.3.5).


 

(a)

Where a Fiduciary Relationship or a Special Relationship exists


Professor Justice Finn, in his work on Good Faith and Non-Disclosure (1989), concluded that disclosure obligations are determined by the "reasonable expectations" of the parties in a particular relationship. Considerations relevant as to whether a reasonable expectation of disclosure arises include the nature of the contract and the status of the relationship of the parties. If there is a fiduciary relationship or a special relationship and there is reliance upon the party in the superior position, there is an expectation of disclosure.93

 

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Where a Fiduciary Relationship exists


What constitutes a fiduciary relationship has already been described in Section 2.3.3, Negligent Misrepresentation. Here we are solely concerned with the 'duty to disclose' element of fiduciary duty.


‘Under certain circumstances a duty may arise to disclose a material fact, and its non-disclosure may have the same effect as a representation of non-existence.’ 94


Those in a fiduciary (or confidential) relationship with another are under a duty to make full disclosure of all material facts which might be considered likely to affect a transaction with those to whom the duty is owed.94A



In Turner and Sutton's, Spencer Bower, The Law Relating to Actionable Non-Disclosure and Other Breaches of Duty in Relations of Confidence and Influence (1990), the learned authors conclude that the better view on the matter of the nature and extent of the fiduciary duty of disclosure depends on the nature of the relationship between the parties, and on the legitimate expectations of the party who is reposing trust in the fiduciary in the particular circumstances of the case. [Or, as it is expressed in Goff and Jones, Law of Restitution (3rd edition, 1986, at p 364), "the more intense the fiduciary relationship, the more vigilant is the court's surveillance of the conduct of the fiduciary".]95



Those under a fiduciary duty are broadly obliged to act in good faith, not to place themselves in a position where their duty and their interest may conflict, or to act for their own benefit or the benefit of a third person without the informed consent of those to whom the duty is owed.95A


But, as already related in Section 2.3.3, the basic principle on which much of the law of fiduciary duty is based is "the obligation not to profit from a position of trust, or, as it is sometimes relevant to put it, not to allow a conflict to arise between duty and interest ..."96


Whenever the relation between the parties to a contract is of a confidential or fiduciary nature, the person in whom the confidence is reposed, and who thus possesses influence over the other, cannot hold that other party to the contract unless he satisfies the court that it is ADVANTAGEOUS to the other party — AND — that he has disclosed all material facts within his knowledge.97

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Where a Special Relationship exists


We have previously seen in Section 2.3.3, under the principles enunciated in Hedley Byrne & Co. Ltd. v Heller & Partners Ltd., that a special relationship, giving rise to a duty of care in the tort of Negligence, may arise between parties negotiating a contract.

That duty may be more extensive than merely to refrain from making negligent misstatements, and may impose upon the party in whom confidence is reposed [on whom reliance is placed] an obligation to disclose to the other party information relevant to the contract or to provide an adequate explanation of the contract into which the other party is about to enter.98


This obligation to disclose, incumbent upon the party on whom reliance is being placed, follows from (is activated by) the special relationship duty of care with respect to the giving of advice / imparting of information; it is not a stand-alone duty to disclose in the strict sense, as is the case where there is a fiduciary "duty to avoid taking advantage of superior access to material information"98A, or, as will be seen below, where the contract requires the Utmost Good Faith.


Professor Justice Finn, in his work on Good Faith and Non-Disclosure (1989), put the matter thus:98B

'[B]uilding on the responsibility that can be born of reliance or of a position assumed, [the tort of] Negligence, primarily through the standard of care it exacts, ordains what the relying party is entitled to have revealed to him.'

 

Remember that ‘looked at from the point of view of the person entitled, an obligation is a right; looked at from the point of view of the person bound, it is a duty’!98C

 

Note! For convenience of language throughout this website book, such a special relationship obligation to disclose information / material facts may also be described as a duty to disclose [following from the existence of a special relationship duty of care]. 

On the subject of duty of disclosure, and capturing the significance of silence as a misrepresentation, Justice Handley (in his authoritative 2000 edition of Actionable Misrepresentation) cited the explanations of Black C.J., in Demagogue Pty Ltd. v Ramesky (1992, Australia), as being of general application:99

Silence is to be assessed as a circumstance like any other. To say this is certainly not to impose any general duty of disclosure; the question is simply whether, having regard to all the relevant circumstances, there has been conduct that is misleading or deceptive ...... To speak of mere silence or of a duty of disclosure can divert attention from the primary question. Although mere silence is a convenient way of describing some fact situations, there is in truth no such thing as mere silence because the significance of silence always falls to be considered in the context in which it occurs.'

 

 

In Banque Financière de la Cité v Westgate Insurance Co. Ltd. (1989, England), Slade L.J., giving judgment on behalf of the Court of Appeal, posed the question:

Can a mere failure to speak ever give rise to liability in negligence under Hedley Byrne principles? In our view it can, but subject to the all-important proviso that there has been on the facts (1) a voluntary assumption of responsibility in the relevant sense and (2) reliance on that assumption. These features may be much more difficult to infer in a case of mere silence than in a case of misrepresentation …….

We can see no sufficient reason on principle or authority why a failure to speak should not be capable of giving rise to liability in negligence under Hedley Byrne principles, provided that the two essential conditions are satisfied.

A hypothetical example may illustrate the point. Suppose that a father employs an estate agent for a fee to advise his son on the proposed purchase of a house and the estate agent negligently fails to inform the son that a motorway is shortly to be constructed within a few hundred yards of the property. We would not doubt that in such a case the son, knowing of the estate agent’s duty and relying on it, could have a claim in negligence under Hedley Byrne principles.99A


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We have already seen, in Section 2.3.3, that, where a fiduciary relationship duty or a special relationship duty exists, a negligent breach of that duty can give rise to an action based on negligent misrepresentation at Common Law. Silence, as a negligent breach of a fiduciary duty to disclose, or as a negligent breach a duty to disclose (an obligation to disclose) following from a special relationship duty of care, will therefore equally give rise to an action based on negligent misrepresentation.

 

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In cases where there is a breach of a fiduciary or confidential relationship, the injured party will be entitled to rescind the contract or transaction, to be restored to the pre-contractual position, and to recover any profit made by the other party as a result of the breach.1

In cases where the duty of care follows from the special relationship principle enunciated in Hedley Byrne, prima facie the breach of such a duty would give rise to an action in damages in tort only, and (generally) not to a claim that the contract be rescinded.1A

However, as we shall see in (c) below, IF the contract entered into is one of the Utmost Good Faith, and material facts are not disclosed by either party, THEN the party to whom material facts have not been disclosed is entitled to avoid the contract. 


Also, as previously noted, the question arises whether non-disclosure where there is a duty or an obligation to disclose, such non-disclosure being tantamount to an implied representation that there is nothing relevant to disclose, constitutes statutory misrepresentation. (This issue will be explored further in Section 2.3.5.)

 

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'Equitable Fraud' — Immediate Opportunity for 'Actual Fraud'


In A Fiduciary Relationship (in Section 2.3.3) we saw how, even though there may not be evidence of an actual intention to deceive, a 'presumption of fraud' [as described by Lord Hardwicke in Chesterfield v Janssen (1851, England)] is used by Equity in certain contracting circumstances to prevent one party from knowingly taking surreptitious advantage of another.

Such circumstances were seen to prevail where a fiduciary relationship exists between the contracting parties, and the conduct of the fiduciary (misconduct) is such that he, knowingly or recklessly, takes secret advantage of the trusting party.

We saw how, following from what was set down as a ‘presumption of fraud’ in the circumstances as described by Lord Hardwicke, the term ‘equitable fraud’ has come to be used to distinguish such misconduct by the party in whom trust / confidence is reposed.


But, such circumstances will equally be seen to prevail where a special relationship exists between the contracting parties, i.e. as set down under the Hedley Byrne precedent  (see A Special Relationship in Section 2.3.3).

Therefore, where a special relationship exists, such misconduct will equally come within the protective compass of Equity: such misconduct will equally give rise to a 'presumption of fraud': such misconduct will equally constitute 'equitable fraud'.

 

So, in application of the criteria giving rise to a ‘presumption of fraud’ [as set down by Lord Hardwicke] to a conscious non-disclosure —— where the party, in whom trust is reposed / on whom reliance is placed, knows that, or is reckless as to whether, the other party is being deceived by not being given the information withheld (i.e. by the non-disclosure) —— it does not much matter whether the misconduct is by a deliberate breach of fiduciary duty to disclose, or by a deliberate breach of an obligation to disclose following from a special relationship duty of care.

Such misconduct, in either case, constitutes 'equitable fraud' by silence.



In Kitchen v Royal Air Forces and Others (1958, England), Lord Evershed, when setting out the meaning of the word 'fraud' within the U.K. Limitation Act 1939 [i.e. the meaning of 'equitable fraud'], stated:

‘What is covered by 'equitable fraud' is a matter which Lord Hardwicke [see Chesterfield v Janssen in Section 2.3.3] did not attempt to define two hundred years ago, and I certainly shall not attempt to do so now, but it is, I think, clear that the phrase covers conduct which, having regard to some special relationship between the two parties concerned, is an unconscionable thing (‘against conscience’) for the one to do towards the other.’2


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In A Fiduciary Relationship (in Section 2.3.3) we also highlighted the fact that, where a fiduciary relationship exists, the particular circumstances giving rise to a 'presumption of fraud' [as described by Lord Hardwicke in Chesterfield v Janssen (1851, England)], were such that, for any party in whom trust / confidence is reposed, the opportunity for the fiduciary to perpetrate 'actual fraud' (be it 'common law fraud' or 'criminal fraud') against the trusting party  ——  is immediate.

And we highlighted the fact that there is a strong incentive in all cases of fiduciary misconduct for the fiduciary to keep the misconduct secret.2A The keeping secret of such misconduct is particularly manifest where there is a knowing breach of duty to disclose material facts. Hence the strict requirements set down by Equity under Fiduciary Law to protect the party who places confidence in a fiduciary.


But, where the relationship between the parties may be categorised as a special relationship (as under the Hedley Byrne precedent), the immediate opportunity to perpetrate 'actual fraud' may equally be seen to present itself.

Equally, it will often not be known, or it will be unclear, whether or not the party on whom reliance is being placed (in whom trust / confidence is being reposed) has, knowingly or recklessly, done wrong.

So, where a special relationship exists, there is therefore no less an incentive for the party on whom reliance is being placed (in whom trust / confidence is being reposed) to keep such conscious non-disclosure secret.


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SO THEN, what if a fiduciary relationship or a special relationship exists, and the party in whom confidence is reposed / on whom reliance is placed is giving advice or information to the other party with the intent that he should act on that advice or information, and there is a deliberate breach of the duty or obligation to disclose, as where the party under a duty or obligation to speak either knows that, or is reckless as to whether, the other party is being deceived by not being given the information withheld?

 

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There should be no Euphemism for Fraud


In Conlon v Simms (U.K. 2006), Collins L.J. set out, within his reasoned conclusions, the circumstances that would give rise to a fraudulent non-disclosure:

'...... it is clear that where there is a duty to disclose, and the failure to disclose is fraudulent, there will be an action in deceit and damages will be an available remedy. In such cases "the non-disclosure assumes the character of fraudulent concealment, or amounts to fraudulent misrepresentation, or is otherwise founded on, or characterised and accompanied by, Fraud ( –– citing paragraph 14.02 of Spencer Bower, The Law Relating to Actionable Non-Disclosure and Other Breaches of Duty in Relations of Confidence and Influence, 2nd edition [1990], by Turner and Sutton).3

...... In HIH Casualty & General Insurance Ltd. v Chase Manhattan Bank (U.K. 2003), Lord Hoffman said: "It cannot be easy to conceal material facts in the course of negotiating, without falsifying something which has been expressly or impliedly stated" and, citing Brownlie v Campbell (U.K. 1880), he [Lord Hoffman] also said that "where there is a duty or an obligation to speak, and the person holds his tongue and does not speak, and does not say the thing he was bound to say, if that was done with the intention of inducing the other party to act upon the belief that the reason why he did not speak was because he had nothing to say, I should be inclined myself to hold that that was Fraud also".'3A





In the subsequent 2006 Court of Appeal in Conlon v Simms, Jonathan Parker L.J. respectfully agreed with the original judgement wherein Judge Collins had said that where the breach of the duty of disclosure is fraudulent, a party to whom the duty is owed who suffers loss by reason of the breach may recover damages for that loss in the tort of deceit.


Jonathan Parker L.J. then, pithily, cut to the core issue where he said:

'Non-disclosure where there is a duty to disclose is tantamount to an implied representation that there is nothing relevant to disclose'.3B





U.K. Law and Irish Law

MARK THIS WELL !



In the context of the Law applicable in the various jurisdictions, and in the context of timeframe, it is particularly worth noting that the decisions in Conlon v Simms (see above), both in the original decision of Collins L.J. and in the subsequent Court of Appeal decision as stated by Jonathan Parker L.J., did not purport to create new Law on this matter, but set down their conclusions by incorporating the stated position in Law from previous authorities.


The statement of Law from paragraph 14.02 of the 1990 edition (the second edition) of The Law Relating to Actionable Non-Disclosure and Other Breaches of Duty in Relations of Confidence and Influence, as cited by Collins L.J. in Conlon v Simms (above), is clearly stated by the authors of the 1990 edition, Sir Alexander Turner and Richard Sutton, to be a verbatim quote from the text of Spencer Bower's original 1915 edition.



The learned authors of the 1990 edition, Turner and Sutton, expressly stated that they were adhering 'without qualification to Mr. Spencer Bower's statement on the matter' (this was exactly as cited by Collins L.J. in Conlon v Simms above), and included, among the precedent cases they referenced, the cases as originally set down in Spencer Bower's 1915 edition, the earliest case referenced on the matter being Wilson v Fuller (1843).

AND, the genesis of Lord Hoffman's assertion of Law, which was the second precedent judgement (HIH Casualty & General Insurance Ltd. v Chase Manhattan Bank) cited by Collins J. in Conlon v Simms, goes back to Lord Blackburn's statement in the House of Lords' judgement in Brownlie v Campbell —— back to 1880.

 

SO WHAT !


So, in the context of the Law applicable in the various jurisdictions, and in the context of timeframe, the precedent Law with respect to a fraudulent breach of duty / obligation to disclose, as cited by Collins L.J. in the 2006 U.K. case of Conlon v Simms, goes back to the time when Ireland was under British rule.


It therefore sets out the precedent Law that is also applicable in Ireland.

 



As can be seen from the above, and as previously noted in Section 2.3.2, the silence by the party under a duty [or obligation] to disclose may be a deliberate silence, where the suppression of material facts is done with conscious knowledge that the other party is being, or is likely to be, deceived.

Under such circumstances the non-disclosure must be seen to have moved beyond the bounds of Negligence and into the realms of Fraud.


But IF there is dishonest intent present, as where the party under a duty / obligation to disclose intends that a gain will result for himself or for others as a consequence of his deception, THEN that deliberate silence must be seen to have descended even further, into the realms of Criminal Fraud.





RECORDS! RECORDS! RECORDS!


MARK THIS WELL !


Whenever the relation between the parties to a contract is of a confidential or fiduciary nature, the person in whom the confidence is reposed, and who thus possesses influence over the other, cannot hold that other party to the contract unless he SATISFIES the court that it is advantageous to the other party — AND — that he has disclosed all material facts within his knowledge.97

This citation from Moody v Cox and Hatt (1917 England) sets down the Common Law in both the United Kingdom and in Ireland, Ireland being under British rule in 1917.

This places a Common Law obligation, with respect to burden of proof, on the person in whom the confidence is reposed: the fiduciary must be able to provide objective evidence to the court that shows BOTH that the contract is to the other party's advantage AND that he has disclosed all material facts within his knowledge.


The only way that the person in whom confidence is reposed can ensure that he will be able to fulfil this legal obligation is to have a valid record of having disclosed such material factsa written record of all disclosures, signed, as having been received by him, by the party to whom the duty to disclose is owed.

Such material facts will include the reasons for the advice given: the 'because' in 'My advice to you is to choose this contract / investment product, etc. because'.


Those in established fiduciary positions, such as those within the Financial Services Sector in their dealings with clients, KNOW that they would be required by the court to provide objective evidence that they have disclosed all material facts within their knowledge.


They therefore KNOW that they are under a Common Law obligation with respect to how they conduct their affairs to have systems and procedures in place that ensure that they would be able to provide such objective evidence.


They also KNOW that, as fiduciaries, the keeping of valid records of their dealings with their clients, most particularly in the matters of 'advice given and information provided' (i.e. disclosures), would be very much in the best interests of their clients going forward.




The deliberate not keeping of valid records by a Financial Services Institution gives effect to the active concealment of everything, all disclosures and all non-disclosures.


In light of the certain knowledge of the extent of its fiduciary duties, when a Financial Services Institution does not keep valid records of the disclosures it makes to its clients, this must be seen as a deliberate course of action on its part.


In such circumstances, the not keeping of valid records must be seen as a fraudulent act in itself.



Furthermore, when a Financial Services Institution engages in a course of action such that it does not keep valid records of its disclosures (i.e. the advice given and information provided), it sets up an environment that facilitates, encourages and effectively condones the perpetration of and collusion in fraudulent practices against customers / consumers.



And, again, the question as to whether there is dishonest intent present comes into play.


Such dishonest intent may be evidenced where the party in deliberate breach of fiduciary duty stands to make gain for himself or others following from that breach of duty.




 

(b)

Where the Silence Distorts a Positive Representation


Silence upon some of the relevant factors may obviously distort a positive assertion. A party to a contract may be legally justified in remaining silent about some material fact, but if he ventures to make a representation upon the matter it must be a full and frank statement, and not such a partial and fragmentary account that what is withheld makes that which is said absolutely false. A half truth may be in fact false because of what it leaves unsaid, and, although what a man actually says may be true in every detail, he is guilty of misrepresentation unless he tells the whole truth.4 (See also Section 2.3.2.)


The above statement of U.K. Common Law, from Cheshire, Fifoot and Furmston’s Law of Contract, was also adopted as a correct statement of law in Ireland by Justice Keane in Doolan v Murray, Murray, Murray Cheever, Aziz and Dun Laoghaire Corporation (1993).

 

But again, in the particular circumstances, the question as to whether the Silence which distorts a positive representation constitutes Fraudulent Misrepresentation [and not just negligent or statutory misrepresentation] must be considered.

For, IF there is an apparent disclosure of a fact, while there is a deliberate silence with respect to other facts which, if disclosed, would put a wholly different complexion on the disclosure, and show what only is disclosed to be false, because it was not the whole truth, THEN such silence must also be seen to have moved beyond the bounds of Negligence and into the realms of Fraud. (See Delany v Keogh in  Section 2.3.2.)

And, again, if there is dishonest intent present, as where the party choosing to remain silent intends that a gain will result for himself or for others as a consequence of his deception, then that deliberate silence must also be seen to constitute Criminal Fraud.




 

(c)

Where the Contract requires the Utmost Good Faith (Uberimma Fides)


An Insurance Contract is a contract expressed by law to be a contract of the Utmost Good Faith (Uberimmae Fidei), where material facts must be disclosed; if not the contract is voidable.


An Insurance Company contracts on the basis that all material facts known to the insured have been communicated to them. If there has been non-disclosure by the insured the Insurance Company is entitled to avoid the contract.



This obligation on the insured is often stated directly in the Insurance Contract Proposal Form. For example, the Endowment Mortgage Proposal Form (see Appendix 1/4), as filled out by my wife and I and forwarded to First National (the tied agent of Irish Life Assurance), contained the following:

(1)

A headnote, pertaining to the questions on the medical particulars of my wife and I, which stated: ‘The purpose of the following questions is to establish material facts which are regarded as likely to influence the assessment of the proposal. Non-disclosure or misrepresentation may constitute grounds for Irish Life rejecting a claim.’

(2)

A declaration, to be signed by my wife and I, stating: ‘I agree that the proposal form will form the basis of the contract with Irish Life and I understand that non-disclosure or misrepresentation in the proposal will constitute grounds for rejection of a claim…… I have read and I understand the note concerning disclosure of material facts.’


The question therefore arises (in the context of an Contract of Insurance): What constitutes a material fact?

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Section 18(2) of the Marine Insurance Act 1906 (U.K. and Ireland) sets out what has become the widely accepted test of materiality in all classes of insurance, as follows:

Every circumstance is material which would influence the judgement of a prudent insurer in fixing the premium, or determining whether he will take the risk.5



In Chariot Inns Ltd. v Assicuzioni Generali SPA and Coyle Hamilton Hamilton Phillips Ltd. (1981, Ireland), Justice Kenny put the matter thus:

It is not what the person seeking insurance regards as material, nor is it what the insurance company regards as material. It is a matter or circumstance which would reasonably influence the judgement of a prudent insurer in deciding whether he would take the risk, and, if so, in determining the premium which he would demand. The standard by which materiality is to be determined is objective, not subjective. The matter has, in the last resort, to be determined by the court.5A




Justice Kenny then explained the law regarding the materiality of facts. He first cited the above Section from the Marine Insurance Act 1906 (U.K. and Ireland). He then cited the leading U.K. cases of Zurich General Accident and Liability Insurance Co. v Morrison (1942, U.K.) and Mayne Nickless Ltd. v Pegler (1974, U.K.), as follows:

The rule to determine the materiality of a fact not disclosed to the insurers was expressed by Lord Justice MacKinnon with his customary pungency in Zurich General Accident and Liability Insurance Co. v Morrison (1942, U.K.):


'Under the general law of insurance an insurer can avoid a policy if he proves that there has been misrepresentation or concealment of a material fact by the insured. What is material is that which would influence the mind of a prudent insurer in deciding whether to accept the risk or fix the premium. If this be proved, it is not necessary further to prove that the mind of that actual insurer was so affected.'6


The (following) statement of Samuels J. in Mayne Nickless Ltd. v Pegler (1974, U.K.), on the rules relating to the law about materiality of facts not disclosed in insurance law, has the authority of having been approved and followed by the Judicial Committee of the Privy Council in Marene Knitting Mills Pty. Ltd. v Greater Pacific General Insurances Ltd. (1976, U.K.):   

'Accordingly I do not think that it is generally open to examine what the insurer would in fact have done had he had the information not disclosed. The question is whether that information would have been relevant to the exercise of the insurers’ option to accept or reject the insurance proposed. It seems to me that the test of materiality is this: a fact is material if it would have reasonably affected the mind of a prudent insurer in determining whether he will accept the insurance, and if so, at what premium and on what conditions.'7

 

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The Duty to Disclose incumbent on the insured, as a party to the contract, is therefore clear. The insurer is therefore able to fully assess his exposure to Risk and decide whether or not to enter into the Contract with the insured, and under what conditions.


But what of the insured?


Is there a reciprocal duty, and what is the extent of that duty, on the insurer to disclose material facts known to him that are likely to effect the decision of the insured to enter into the Contract?


 

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In Banque Financière de la Cité v Westgate Insurance Co. Ltd. (1989, England), Slade L.J. gave judgement on behalf of the Court of Appeal. In the course of his clarifications he said the following with regard to the obligation to disclose:

The common feature of contracts which are classified by the law as contracts uberrimae fidei is that by their very nature one party is likely to have the command of means of knowledge not available to the other.

In the leading case of Carter v Boehm (1766) Lord Mansfield C.J. described the rationale behind the duty of disclosure falling on the insured in the case of contracts of insurance as follows:

‘Insurance is a contract upon speculation. The special facts, upon which the contingent chance is to be computed, lie most commonly in the knowledge of the insured only: the under-writer trusts in his representation, and proceeds upon confidence that he does not keep back any circumstance in his knowledge, to mislead the under-writer into a belief that the circumstance does not exist, and to induce him to estimate the risque, as if it did not exist. The keeping back such circumstance is a fraud, and therefore the policy is void. Although the suppression should happen through mistake, without any fraudulent intention; yet still the under-writer is deceived, and the policy is void; because the risque run is really different from the risque understood and intended to be run, at the time of agreement.’ (The italicised emphasis, here, is Lord Mansfield’s.)


Note!
To avoid confusion, it must be clarified that the term fraud, as used by Lord Mansfield in his 1766 rationale behind the duty of disclosure (as cited above), is not necessarily fraud within the meaning as ruled by Lord Herschell in Derry v Peek in 1889 (see Section 2.3.2); it is not necessarily fraud in the sense that there is a definite absence of honest belief, as the failure to disclose may be just a mistake on the part of the insured. On the other hand, the non-disclosure may be wholly deliberate, with intent to defraud the insurer from the outset, in which case it would amount to criminal fraud.

In our judgement, there is no doubt that the obligation to disclose material facts is a mutual one imposing reciprocal duties on insurer and insured…………

It is no less clear that where there is obligation to disclose material facts it is an absolute one which is not negatived by the absence of fraud (i.e. within the meaning as ruled in Derry v Peek) or negligence. The law requires a party to an insurance contract to state not only all those material circumstances within his knowledge which he believes to be material, but those which are in fact so……….

In adapting the well-established principles relating to the duty of disclosure falling on the insured to the obverse case of the insurer himself, due account must be taken of the rather different reasons for which the insured and the insurer require the protection of full disclosure.

In our judgement, the duty falling on the insurer must at least extend to disclosing all facts known to him, which are material either to the nature of the risk sought to be covered or to the recoverability of a claim under the policy, which a prudent insured would take into account in deciding whether or not to place the risk for which he seeks cover with that insurer……. 8



Avoidance of the contract and the return of premiums paid may, in most insurance cases, be sufficient relief for the aggrieved insured if he becomes aware of the non-disclosure before the occurrence of the contingency against which he has intended to insure. But if he becomes aware of it only after the occurrence of the contingency, relief of this nature may be quite inadequate…….9 Such relief would certainly provide no adequate remedy in the case of an Endowment Mortgage Contract.


Slade L.J. held that the breach of its duty of disclosure by the insurer does not, of itself, constitute a tort — it does not, of itself, give rise to an action for damages. A breach of its duty of full disclosure by the insurer will, however, give rise to a claim for damages where such a breach constitutes fraudulent or negligent misrepresentation.
10


92 Furmston, Cheshire, Fifoot and Furmston's Law of Contract, (15th ed.), p. 336, citing Lord Atkin, Bell v Lever Bros Ltd. (1932, England).

92A Furmston, Cheshire, Fifoot and Furmston's Law of Contract, (15th ed.), p. 336.

93 Cockburn and Wiseman, Disclosure Obligations in Business Relationships, p. 10, referencing Finn, Good Faith and Non-Disclosure, at pages 155 and 179.

94 Furmston, Cheshire, Fifoot and Furmston's Law of Contract, (15th ed.), p. 379, citing Ashburner, Principles of Equity (2nd ed.).

94A, 95A Beatson, Burrows and Cartwright, Anson’s Law of Contract, (29th ed.), p. 340.

95 Turner and Sutton, Spencer Bower, The Law Relating to Actionable Non-Disclosure and Other Breaches of Duty in Relations of Confidence and Influence, 2nd edition [1990], paragraph 16.17.

96 Turner and Sutton, Spencer Bower, The Law Relating to Actionable Non-Disclosure and Other Breaches of Duty in Relations of Confidence and Influence, 2nd edition [1990], paragraph 16.14, citing Cooke J., in the decision of the New Zealand Court of Appeal in Coleman v Myers (1977).

97 Furmston, Cheshire, Fifoot and Furmston's Law of Contract, (15th ed.), p. 379 and 380, citing Moody v Cox and Hatt (1917, England).

98 Beatson, Burrows and Cartwright, Anson’s Law of Contract, (29th ed.), p. 342.

98A, 98B Cockburn and Wiseman, Disclosure Obligations in Business Relationships, p. 10, referencing and quoting Finn, Good Faith and Non-Disclosure, at pages 154 and 179, respectively.

98C Black’s Law Dictionary quoting from Glanville William’s edition of Salmond on Jurisprudence (10th edition 1947)

99 Handley, Spencer Bower, Turner and Handley, Actionable Misrepresentation, 4th edition [2000], paragraph 85.

99A Wheeler and Shaw, Contract Law, (1st ed.), p. 302 and 303.

1, 1A Beatson, Burrows and Cartwright, Anson’s Law of Contract, (29th ed.), p. 342.

2 All England Law Reports - All ER 1958 Volume 2 [241]

2A Turner and Sutton, Spencer Bower, The Law Relating to Actionable Non-Disclosure and Other Breaches of Duty in Relations of Confidence and Influence, 2nd edition [1990], paragraph 16.25.

3, 3A [2006] England and Wales High Court 401 (Chancery Division), which can be studied on the British and Irish Legal Information Institute (BAILII) website.

3B [2006] England and Wales Court of Appeal (Civil Division) Decisions, which can be studied on the BAILII website.

4 Furmston, Cheshire, Fifoot and Furmston's Law of Contract, (15th ed.), p. 336 and 337.

5, 5A, 6,7 Clark and Clarke, Contract Cases and Materials, (4th ed.), p. 573.

8 Wheeler and Shaw, Contract Law, (1st ed.), p. 295 and 296.

9, 10 Wheeler and Shaw, Contract Law, (1st ed.), p. 297 and 298.

 

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