Speak no evil - no fraud by silence in Jersey law?



It has been an open question for almost 20 years whether a misrepresentation constituting dol (essentially, fraud) could be made by silence alone in Jersey law. The issue has now been laid to rest following the Royal Court judgment in the long running dispute between HRCKY Limited and Hard Rock International Limited, which held that mere silence, without more, cannot amount to a misrepresentation under Jersey contract law. The doctrine was not entirely excluded, however, as the Court left open the question of whether it may be of relevance in the case of a fiduciary contract, or where one party has placed trust and confidence in another.

In that same judgment, the Royal Court also held that there is no general duty of good faith in all Jersey contracts, and you can read our advisory on that part of the decision here.

What was the case about?

The dispute arose from a franchise agreement between HCRKY Limited ("HRCKY") and Hard Rock International Limited ("Hard Rock") entered into in 1999, which entitled HRCKY to operate a Hard Rock Café in the Cayman Islands for 20 years (the "Franchise Agreement").

The franchise was initially successful but eventually foundered, in part due to external factors such as the relocation of the port in Cayman and the devastation caused by Hurricane Ivan. Hard Rock terminated the Franchise Agreement in 2013, which had been upheld in a previous decision granting summary judgment in favour of Hard Rock.

However, HRCKY counterclaimed. It alleged that Hard Rock had failed to disclose information, which HRCKY argued was material, before the parties entered their contract. HRCKY argued that such non-disclosure amounted to a misrepresentation by silence, or "dol par réticence" ("fraudulent silence") as it had been described in previous Jersey case law. As a result, the Royal Court had to consider whether one party possessing information significant to a contract being negotiated is under a duty to inform the other party of that information before they enter that contract.

Previous cases – different voices

As Jersey law originated from the customary law of Normandy, it was traditionally less influenced by English than French sources. In particular, fraudulent pre-contractual misrepresentations are known by the French term, "dol". It has previously been held that silence may constitute a dol where it is accompanied by a positive representation1. The question for the Royal Court was whether mere silence as to a material fact by one party, without more, could also do so.

The issue was first considered in Steelux v Edmonstone2. The Court considered that silence could amount to fraud where one party, particularly one more "worldly-wise", was silent as to a material fact which, if known to the other party, would have led to a refusal to enter into a contract ("dol par réticence"). In support of this proposition, the Court in Steelux had regard to the French doctrine of réticence dolosive, which provides that intentionally concealing information which the wrongdoer is under a duty to provide can constitute a dol.

The decision in Steelux was subsequently doubted in Toothill v HSBC Bank plc3. In Toothill, the Court considered the observations made in Steelux to be obiter and went on to state that "tacit acquiescence in another's self-deception does not itself amount to a misrepresentation, provided it has not previously been caused by a positive representation". Nevertheless, the Court in Toothill did expressly leave open the question of whether the law of Jersey should recognise a duty of positive disclosure.

The concept arose again in Sutton v Insurance Corporation of the Channel Islands Limited4, which concerned a contract of insurance. Although insurance contracts are subject to a duty of the utmost good faith, and a non-disclosure of material fact entitles an insurer to avoid a contract, the Court in Sutton drew on the French concept of réticence dolosive, which it considered useful in analysing the duties of parties subject to a duty of utmost good faith.

The court's analysis – réticence reluctance

Against that backdrop, the Court in HRCKY carried out an extensive review of this area of Jersey contract law, and began by considering the nature of dol generally. It referred to the classic definition of dol espoused by Pothier, who is considered the more influential writer on Jersey contract law. His description is wide, namely that dol includes "every artifice used by one person to deceive another". The Court in HRCKY accepted this could extend to a mixture of positive misrepresentations accompanied by silence (as it had previously held in Toothill). However, the Court went on to note that this broad definition of dol should not be confused with the doctrine of dol par réticence, which is constituted by mere silence as to a material fact and nothing more.

The Court then went on to examine the previous case law in this area, noting the concept of réticence dolosive relied on in Steelux is a development of French case law and reiterated its recent caution against reliance on modern French law as a source of Jersey contract law5. Next, the Court observed that the reference to the doctrine of réticence dolosive in Sutton was merely obiter and thus not binding, as the contract in Sutton was for insurance, which is a contract of utmost good faith, and non-disclosure of material fact by the insured will vitiate the contract. The doctrine of réticence dolosive was therefore not necessary for the decision.

Further, the Court noted that there was no mention of dol par réticence by the historical Jersey and French legal commentators who are accepted as authoritative in Jersey in their discussion on dol.

Following a thorough review of the authorities, the Court concluded that dol par réticence does not apply to all contracts governed by Jersey law, for the following reasons:

  1. Given the divergence of opinion in the case law, it could not be said that there is a general consensus of opinion as to what the law of Jersey in this area might be.
  2. Such an extension of dol to include dol par réticence was not supported by the traditional customary law sources, but is a creation of more recent jurisprudence of the French Courts and amendments to the Code Civil.
  3. To apply the doctrine to every contract governed by Jersey law would be a step too far: it would not simply refine or clarify Jersey contract law but would fundamentally alter the starting point for contractual negotiations in which parties may (and naturally do) have regard to their own interests.
  4. The Royal Court should be slow to develop customary law where to do so might cut across existing legislation or where the legislature enters the arena, even if there remains more to be considered. The Supply of Goods and Services (Jersey) Law 2009 had already made provision for the protection of consumers; in particular, Article 24, which imposes a warranty confirming disclosure of certain defects in sales of goods to consumers. The doctrine of dol par réticence would cut across this provision.

The Court went on to say that if even its analysis above was incorrect then, at the very least, the doctrine of dol par réticence should not apply to commercial contracts (between businesses), as when businesses contract with each other they are able to make necessary enquiries and/or seek appropriate warranties or assurance.

Notwithstanding its conclusion that dol par réticence does not apply as a general principle of Jersey contract law, the Court went on to say that a failure to speak up may amount to dol in certain circumstances, and that the doctrine may be of relevance in a fiduciary contract, or if one party has placed trust and confidence in another. Ultimately, the Court left open the precise scope of where customary law might be extended in this regard as the Franchise Agreement was a contract between businesses and therefore dol par réticence cannot apply.

Conclusion- silence is golden

So, mere silence as to a material fact, provided it is not accompanied by a positive representation, will not constitute a misrepresentation under Jersey law. However, the door has not been shut completely on the doctrine of dol par réticence, with the Court indicating that it may have some relevance in fiduciary contracts, or if one party has placed trust and confidence in another. It remains to be seen whether the doctrine will apply in such circumstances, or if the door will finally slam shut on dol par réticence for good.

1 Toothill v HSBC Bank plc [2008] JLR 77
2 [2005] JLR 152
3 [2008] JLR 77
4 [2011] JLR 80
5 Hore v Valmorbida and Anor [2022] JRC 202, at [166-167]

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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