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 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).

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(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

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

 

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:

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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:

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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:



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:

As can be seen from the above, and as previously noted in Section 2.3.2, the silence by the party under a duty 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 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.

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(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.

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(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:



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





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:

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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:

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

 

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