W Scott Fell and Company Limited v Lloyd [1906] HCA 79

W Scott Fell and Company Limited v Lloyd [1906] HCA 79 - HCA 1906 case summary — Zoe

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Contracts, vol. 1., sec. 516, stated the rule as follows (2): - '"'The general rule, both of law and equity, in respect to concealment, is that mere silence with regard to a material fact, which there is no legal obligation to divulge, will not avoid a contract, although it operate as an injury to the party from whom it is concealed.' 'Thus, he goes on to say (sec. 517), 'although a vendor is bound to employ no artifice or disguise for the purpose of concealing defects in the article sold, since that would amount to a positive fraud on the vendee; yet under the general rule of caveat emptor, he is not, ordinarily, bound to disclose every defect of which he may be cognizant, although his silence may operate virtually to deceive the vendee. J. said (3): - * In this case I agree that on the sale of a specific article, unless there bea warranty making it part of the bargain that it possesses some particular quality, the purchaser must take the article he has bought though it does not possess that quality. And Tagree that even if the vendor was aware that the pur- chaser thought that the article possessed that quality, and would not have entered into the contract unless he had so thought, still the purchaser is bound, unless the vendor was guilty of some fraud or deceit upon him, and that a mere abstinence from dis- abusing the purchaser of that impression is not fraud or deceit ; for, whatever may be the case in a court of morals, there is no legal obligation.on the vendor to inform the purchaser that he is under a mistake, not induced by the act of the vendor." L apprehend that that is the law. It cannot make any difference to the application of the rule whether it is a vendor or a pur- chaser who does not make disclosure, or whether the sale is or is not of a specific article. The duty is the same in each case. Now, what are the facts alleged to be concealed here? 'The two last are that the Abermain Colliery Company had refused to supply coal to the plaintiffs for shipment to South Australia, and that the plaintiffs intended to ship the coal to South Australia. I fail to see any obligation to disclose the first of those facts, and the second appears to me to be absolutely irrelevant. The remaining

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the case of Fox v. Mackreth (1), where Lord Thurlow L.C, said :- - "TI do not agree with those who say, that wherever such an advantage has been taken inthe course of a contract by one party over another, as a man of delicacy would refuse to take, such a contract shall be set aside. Let us put this case. Suppose A,, knowing of a mine on the estate of B., and knowing at the same time that B. was ignorant of it, should treat and contract: with B. for the purchase of that estate at only half its real value, can a Court of Equity set aside this bargain? No; but why is it impossible? Not because the one party is not aware of the unreasonable advantage taken by the other of this know- ledge, but because there is no contract existing between them by which the one party is bound to disclose to the other the cireum- stances which have come within his knowledge ; for if it were otherwise, such a principle must extend to every case, in which the buyer of an estate happened to have a clearer discernment of its real value than the seller. It is therefore not only necessary that great advantage should be taken in such a contract, and that such an advantage should arise from a superiority of skill or in- formation ; but it is also necessary to show some obligation bind- ing the party to make such a disclosure." That is just such an obligation as J fail to see in this case. What I see here seems to be no more than a superior smartness in dealing. In the case of Turner v. Harvey (2) the purchaser knew that the vendors, the assignees of a bankrupt, had been kept in ignorance of a cireum- stance considerably increasing the value of what was sold, and that the sale by them was at an undervalue, and therefore in vio- lation of their duty to the creditors. Lord Eldon L.C. said (3): - "The Court, in many cases, has been in the habit of saying, that where parties deal for an estate, they may put each other at arm's length: the purchaser may use his own knowledge, and is not bound to give the vendor information of the value of his property. As in the case that has been mentioned ; if an estate is offered for sale, and I treat for it, knowing that there is a mine under it, and the other party makes no inquiry, I am not bound to give him any information of it; he acts for himself, and exercises his

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. 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." There, of course, Lord Blackburn insists upon the necessity for there being an obli- gation to speak in order that silence may become fraudulent concealment. That was in 1880, and was an_ affirmative expression of what he said in 1871 in Smith v. Hughes (1): - "Tn this case I agree that on the sale of a specific article, unless there be a warranty making it part of the bargain that it possesses some particular quality, the purchaser must take the article he has bought though it does not possess that quality." I remark here that there can be no difference between the obliga- tions of a vendor to the purchaser and those of a purchaser to the vendor. [His Honor then read the rest of the passage already set out in the judgment of (rifith C.J. and continued.] This passage exactly describes the real relations between the parties under this contract. There is no pretence that there is any relation between them such as in equity - and this is a plea upon equitable grounds - would raise a duty of disclosure. There is no pretence that there was anything more than the relation of intending buyer and seller between them, which entitled each party primd facie to refrain from disclosing to the other any fact which he with his superior skill or knowledge had discovered, and which might make the contract more advantageous to him as buyer or as seller. If there is nothing more than that then the mere non-disclosure is within the rights of the plaintiffs ; and it does not become anything more than non-disclosure, by the fact that in the plea you have the epithet "fraudulent." And as this arose between parties between whom there did not exist any such relation as raised a legal or equitable duty to make a dis- closure, it cannot affect the validity of the contract. This

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Company, at the price of seven shillings and sixpence per ton. The plea which has been demurred to sets up the defence of w. fraudulent concealment. There is a series of facts relied upon for that purpose. Placing them in inverse order, first there was a colliery company agreement called a colliery contract with the defendant for the supply of coal to them. Next there was a colliery agreement with other persons not to supply coal for shipment to South Australia to anyone but those persons, and thirdly there was the plaintiffs' application to the defendant to be supplied with the coal and the refusal of the Abermain colliery to supply it. Fourthly there is the contract with the defendant that is now sued upon. Reading the plea as it ought to be read, not at all events in favour of the vendor, and I think not unreasonably in any case, the alleged agreement with other persons not to supply coal for shipment to South Australia must mean an agreement not to enter into new agreements of that kind. That is the only honest meaning one can give to it. It cannot mean an agreement to break existing contracts. Un- less there is in the plea a distinct allegation of an engagement to break existing agreements it is not to be inferred. The plaintiffs' application to be supplied with coal must be taken to mean an application to enter into a new contract express or implied. 'Then the plea states that there was fraudulent concealment of certain facts which are three in number, first that the Abermain Colliery Company Limited had entered into certain agreements with certain persons other than the plaintiffs and defendant not to supply coal for shipment to South Australia except to those persons, and, if that is taken as I think it ought to be taken, that they had agreed not to make new agreements for that purpose, I do not see how it affects the case. The next fact that was fraudulently suppressed according to the allegation in the plea was that the plaintiffs had applied to the Abermain Colliery Company to be supplied with coal under a new agreement and the company had declined to supply them. It was further alleged that it was the intention of the plaintiffs to ship whatever coal they got under the contract to South Australia. No prior rela- tionship between the parties is alleged. There was no position of

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trust or confidence making it the duty of the plaintiffs to disclose to the defendant what they knew of the matter or what they intended to do with the coal. No such position had been created between them either by words or conduct. No false impres- sion had been created, and there was no active deception, nothing in short raising an obligation on the plaintiffs' part to disclose those facts which were known to them, and nothing which would allow it to be fairly inferred that the colliery company had ever said or led the plaintiffs to believe that the colliery company was going to break its contract with the defendant, and, that being so, there is nothing in the plea. The utmost that can be alleged is that there was silence in respect of certain matters which if the defendant had known he would not have agreed to supply the coal. But that is not sufficient to invalidate this contract, and the passage quoted from Story, read by my learned brother the Chief Justice from Smith v. Hughes (1), I think, embodies the law on this subject: - * The general rule, both of law and equity, in respect to concealment, is that mere silence with regard to a material fact, which there is no legal obligation to divulge, will not avoid a contract, although it operates as an injury to the party from whom it is concealed." That principle was applied in the case of Ward v. Hobbs (2), a very strong case where a Statute prohibited persons from sending animals infected with contagious disease to. market and inflicted penalties on any person so sending them; it was held that the act of sending them if known to be so infected was a public offence, but did not amount by implication to a representation that they were sound, and did not of itself raise any right on the part of the purchaser to obtain damages from the vendor in respect of in- jury he may have suffered in consequence of their purchase. It was argued there very strongly that, there being a Statute which made it a penal act to send such cattle to market, any person would be entitled to treat the fact of their being sent to market as a representation that they were sound, but the House of Lords held that mere silence on the part of the vendor of cattle was not a representation, on the authority of the principle stated in Story in the passage already quoted.

At a glance

Court

Decision date

Before

Source

Judgment (59 paragraphs)