Silence is not always Golden

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In the case of Caffey v Leatt-Hayter [No 3] [2013] WASC 348, the WA Supreme Court found two directors had misled the purchaser of their business through their non-disclosure of certain facts. The defendants owned and operated a successful bookstore in WA. The bookstore’s success was primarily attributed of its business relationship with the State Library of WA (SLWA). However, unfortunately due to budget cuts the SLWA told the defendants in a private meeting that their business with SLWA would be significantly reduced. These budget cuts had been published on the WA Government’s Treasury website.

In selling the business to the plaintiffs the defendants did not mention either the budget cuts nor their meeting with the SLWA. After taking possession of the business the plaintiffs began to notice a significant decline of business from SLWA, who made up two-thirds of the bookstore’s business. As a result the plaintiffs launched proceedings, claiming that the defendant’s had misled them about the business’s relationship with the SLWA.

The Court found that the defendant’s had misled the plaintiffs by failing to disclose the actual relationship with SLWA In coming to this judgment the Court noted that it would not be misleading had the defendant’s only not disclosed the budget cuts. However, this fact, combined with the SLWA meeting created a belief in the plaintiffs that the bookstore would continue to have a lucrative business SLWA.

The case reaffirms that point that silence can often been construed as misleading when examined in the whole context of a transaction.