The duty of disclosure of facts under the English law

February 5, 2023

 

The duty of disclosure of facts under the English law

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The duty of disclosure of facts under the English law

Examination of the extent of the duty to disclose is a legal crux and an old moral (Van Rossum, 2000). A responsibility to disclose is a duty to expose information pertinent to a decision on which another party must count. This obligation has special legal requirements and serious consequences in cases of breach that depend on the environment in which the obligation applies and on the laws in the competence. The most prevalent cases in which an obligation to disclose is specified by law include criminal and civil proceedings, company actions and the selling of insurance among other areas

If one party misrepresents anything in order to entice the other to engage into a contract, that party has the right to cancel the contract, but in simple non-disclosures this is always true until it amounts to an obvious misrepresentation. This means the contracting party is not always obligated to disclose all material facts, even if he knows them but not the other party.

The rule of law as well as equity in the matter of disclosure is that mere silence regarding a significant information which is not legally disclosed is not a breach of a contract per se, however it is an injury to the party from whom it is withheld; (Smith v Hughes, [1871]) there are further elements that need to be provide including the context of non-disclosure before a party’s action of non-disclosure amount to a misrepresentation. This is to say that there are scenarios in law that failure to disclose all the material facts relating to a subject amounts to a misrepresentation and therefore calling for the serious consequences under the law as opined above. The idea of not all non-disclosures resulting into misrepresentation and thus breach of contract for operating in bad faith has a traditional origin that parties engaged in trade should have legal rights “to keep their cards close to their chest” to further their own economic interests in the absence of any fiduciary connection or responsibilities of highest quality (Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd, [1989]).

It, therefore, follows that the director of a company is not obliged to provide information inside the company on facts that would increase the value of the company’s stock in relation to individual shareholders (and in this case to shareholders from whom it purchased certain shares) (Percival v Wright, [1902]). Similarly, without any warranty to the contrary, the lessor who knew of his properly that he “was in such a ruinous and dangerous condition, that he was dangerous in entering, occupying or residing in it, and that his property was likely to fall, wholly or in part, and thus damaging and injuring persons and property therein” was also not obliged to divulge the information to the lessor (Keates v The Earl of Cadogan [1851]). These are the most stringent situations of warning emptor that unjustifiably profit the party that has no such need to disclose.

The rule on non-disclosure is however by no means absolute. The general rule consists of qualifications as discussed below:

  1. More is necessary than silence

The first thing to be done is to determine a misrepresentation (Walters v Morgan, [1861]). This is shown in the Spice Girls case, which Spice Girls Ltd concluded with Aprilia World Service. At the time they understood, but AWS was not, that one of their members had decided to leave the organization, then SGL participated in the commercial shooting at a significant cost to AWS. The Court found that, through their behavior, the SPL had conveyed to AWS the idea that all five members were committed to fulfilling the contract (Spice Girls Ltd v Aprilia World Service BV [2002]).

Secondly, partial failure to provide the information may reflect a misrepresentation. It has been claimed that a contracting party may be legally legitimated to remain silent on some facts, but if he tries to make a statement on the subject it needs to be full and open and not so partial and fragmented that what is rejected renders that completely false (Oakes v Turquand and Harding [1867]).

Suppression of a substantive fact can also make a declaration false. In Dimmock v Hallett, 1866, one land supplier told a buyer that all the farms on the land were completely let, but that the tenants had notified him that they had quit. It was considered to be a misrepresentation. In a similar vein, a literary truth declaration, but which includes some additional untrue and misleading facts, may be too much a misrepresentation. If a person is not aware but in fact has failed to check his belief, then he can be considered to be liable for misrepresentation. If the person is therefore liable for misrepresentation (Notts Patent Brick and Tile Co v Butler, [1886]).

Thirdly, in circumstances where one party intentionally tried to conceal a flaw in the subject of the contract by the other party, the English courts have found a misrepresentation. In Schneider v Heath, the sales of a ship “with all defects to take” displayed this proposal. In the event that the vessel was removed from a dry dock and kept floating, the seller was deemed fraudulent in hijack the problem in the ship’s bottom. The purchaser who subsequently found the flaw was entitled to cancel the contract and collect the deposit.

Finally, an affirmation that at the time of representation was true but then ceases to be true to the representative’s knowledge, if not taken into account by the representative, is a misrepresentation. The main case is With v O’Flagan, where the applicants negotiated to buy the medical practice of the defendant. The fact that the practice was taken at £2000 per annum was correct at the time of its adoption, but the average revenue fell to £5 per annum due to changes in the conditions. The complainant was entitled to terminate the contract on the grounds that a “continuous representation” was a lack of disclosure by the defendant of the change in the facts (With v O’Flagan, [1936]).

  1. Fiduciary relationship 

The Legal Dictionary of Lexis Nexis Hong Kong defines a relationship as a relationship which offers the trustee a special chance to exercise authority or discretion to the prejudice of the other person, who is therefore subject to abuse of his position by a fiduciary. These ties typically include the relationships between the trustee and cestui que trust, lawyer and client, and the relationship between parent and kid.

In cases in which the principal has to decide, or reconsider any decision made, the fiduciary has the obligation, in accordance with its duty to act in the best interests of the principal, to reveal all material facts so that the decision can be taken in an informed manner. Although the data do not affect the personal interest of the fiduciary, failing to disclose the information implies responsibility for any loss that the principal could have prevented if the information was made available to him (Nocton v Lord Ashburton, [1914]). The scope of duty depends on the nature of the agreement between the trustee and the principal (The Board of Trustees of the Sabah Foundation v Datuk Syed Kechik bin Syed Mohamed, [1999]).

  1. Uberrimae Fidei contracts 

Contracts with the highest good faith are particular contracts expressed by law where the relevant facts have to be revealed; else, the contract is void. In addition to unique fiduciary interactions, the major instances include partnership arrangements and insurance contracts. In these circumstances, the contractual responsibility is not imposed; an insuring person’s duty is imposed by the designated partner before an insurance contract is entered into (Bell v Lever Bros Ltd, [1932]).

Uberrimae fidei’s philosophy dates back to the times when ship owners sought insurance from maritime insurers before a perilous voyage (‘Marine Insurance And The Doctrine Of Uberrimae Fidei’, 2001). Subsequently, in the 18th and 19th centuries, English Insurance law developed to make all insurance contracts uberrimae fidei, no matter what their subject matter. In Section 18 of the marine insurance act 1906, which codified the insurance law largely, the extent of the duty of disclosure is set out. Although only marine insurance was formally covered by the Act of 1906, the courts have repeatedly found that it applies to other forms of insurance contracts. Firstly, it had to be a subject of contractual importance. In the Pan Atlantic case, an additional criterion was made where the courts found that it was the insurer who was had to prove that the contract was concluded (Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd, [1995]).

Jonathan Parker explained in connection with partnership agreements that there can be no doubt that caveat emptor does not apply in relation to the conclusion of a partnership agreement and that a parties have an obligation to the other negotiating parties in the negotiation of such a contract to make known to them all the material facts which they know and which the other negotiating parties cannot grant them (Conlon v Simms, [2007]).

  1. Statutory exceptions

In England, the disclosure of several sorts of information was required for a fair amount of statutory or regulatory intervention. 

Naturally, given the emerging and more interventionist state, this is no surprise. Other examples include: Consumer Credit Act 1974; s.4 and s.5 of The Prices Act 1974 (sections 4, 5), s.8 of The Trade Description Act 1968 (section 8); ss.80 and 81 of the Financial Services and Markets Act 2000; ss.28, 29 and 30 of the Partnership Act 1890; and s.18 of the Marine Insurance Act 1906. 

  1. Public interest

In situations of public interest, the law promotes an explicit duty to disclose. The duty of a prosecutor in a criminal case to disclose all exculpative material relevant to the case of the defendant is one of the most significant kinds of disclosures. Directors and executives of corporations are also required to provide information in the public interest. Corporate shares are purchased by investors from a distance and through a stock exchange. They have no choice but to rely on the company’s financial and current information to make a purchase or sale. According to the law, officers and directors of a business are obligated to give shareholders the truth about the state of the company. A country’s corporate economy would be in jeopardy if this requirement did not exist(What is Duty of Disclosure? (with picture), no date).

Conclusion 

General English contract law allows a party to cancel a contract based on a misstatement made by the other party, but this is always the case with simple non-disclosures, unless it amounts to a clear misrepresentation of the facts(Park, 1996). This means the contractual party is not always obligated to disclose all material facts, even if he knows them but the other party doesn’t know them. There is no general duty of disclosure in English law looking at all that has been discussed. That’s because mere silence alone is not enough to sustain a deception action. For silence to be a misrepresentation, for example, the purposeful hiding of a flaw, something else is necessary. Conveniently, some transactions demand the equality of all parties involved. In these cases, the law sets the parties, and especially the party with the most leverage, a proactively responsible responsibility to disclose all relevant facts. This obligation of disclosure enables all parties to carry out the transaction knowing the facts and prevents any subsequent fraud claims or material facts from being ignored(What is Duty of Disclosure? (with picture), no date).

References

Bell v Lever Bros Ltd [1932] A.C. 161 at 227

Conlon v Simms [2007] 3 All E.R. 802

Dimmock v Hallet (1866) LR 2 Ch App 21, CA

Marine Insurance And The Doctrine Of Uberrimae Fidei’ (Wright, Constable & Skeen Sarah Cole, 10 May 2001) <http://www.wcslaw.com/publications.asp?artID=75> Accessed: 17 August 2021

Smith v Hughes (1871) LR 6 QB 587 at 604

Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] QB 433

Percival v Wright [1902] 2 Ch. 421

Keates v The Earl of Cadogan (1851) 10 CB 591

Notts Patent Brick and Tile Co v Butler (1886) 16 QBD 778

Nocton v Lord Ashburton [1914] AC 932, HL

Spice Girls Ltd v Aprilia World Service BV [2002] EWCA Civ 15; [2002] EMLR 27, CA

The Board of Trustees of the Sabah Foundation v Datuk Syed Kechik bin Syed Mohamed [1999] 6 MLJ 497

Oakes v Turquand and Harding (1867) LR 2 HL 325 at 342-343

Park, S. (1996) ‘Origin of the Duty of Disclosure in English Insurance Contracts’, Anglo-American Law Review, 25, p. 221.

van Rossum, M. (2000) ‘The Duty of Disclosure: Tendencies in French Law, Dutch Law and English Law; Criterions, Differences and Similarities between the Legal Systems’, Maastricht Journal of European and Comparative Law, 7(3), pp. 300–325. doi: 10.1177/1023263X0000700305.

What is Duty of Disclosure? (with picture) (no date). Available at: http://www.wise-geek.com/what-is-duty-of-disclosure.htm (Accessed: 17 August 2021).

With v O’Flagan, [1936] Ch 575

Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1995] 1 A.C. 501, 549-550

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