The statement may be in any form – spoken, written or by conduct – but mere silence will not usually amount to a false statement, even though it means concealing some fact which is highly significant. Under the traditional rule of caveat emptor (Latin for ‘let the buyer beware’), a purchaser is required to ask questions about important matters if necessary – the seller is not usually expected to volunteer information which may put the buyer off.
Even if one contracting party knows that the other has misunderstood some aspects of the situation, there is no duty to point this out.
Does silence amount to misrepresentation?
In the case of Fletcher v Krell (1873), the court held that silence did not amount to a misrepresentation.
There are four types of situation where the law does impose a duty to disclose information. To remain silent about a material fact in any of these circumstances can therefore amount to a misrepresentation.
Contracts Requiring Utmost Good Faith
These are often known as contracts requiring uberrimae fidei, which is latin for utmost good faith. Examples are contracts for insurance, offers of shares in a company, sales of land (where utmost good faith is required on matters affecting title to the land, though not physical defects) and certain family arrangements. Failure to disclose a matter regarding which utmost good faith is required allows the innocent party to rescind the contract, though damages are not available.
The basis for this rule is that the relevant facts are likely to be difficult or impossible for the other to find out for themselves, so the law should ensure that one party does not have an unfair bargaining position over the other. This was the position illustrated in the case of Seaman v Fonereau (1743).
A misrepresentation may occur where a statement was true when it was made, but due to a change of circumstances has become incorrect by the time it is acted upon. Keeping silent about the change can amount to misrepresentation as was illustrated in the case of With v O’Flanagan (1936).
If one party makes a statement which is itself true, but which misrepresents the whole situation because of what is left unsaid, the statement may amount to a misrepresentation. This position was held by the court in the case of Dimmock v Hallett (1866).
Sometimes it is the existing relationship between the parties, rather than the type of contract concerned, which gives rise to a duty to disclose important facts about a contract. The main types of relationship accepted by the courts as imposing such a duty (called fiduciary relationship) are those between parent and child, solicitor and client, trustee and beneficiary, principal and agent.
The courts have stressed that the list is not exhaustive, and it is always open to a party to show that the relationship between him or her and the other contracting party is such that one party necessarily places some trust in the other, and that other therefore has influence over them.