Contract: Court confirms that silence where there is a duty to disclose may amount to misrepresentation

The Supreme Court of Appeal recently handed dealt with the requirement to disclose material and relevant facts when entering into a contract, and expanded upon the notion that silence may – in certain circumstances – amount to a misrepresentation.

The case involved the award of a tender for the construction of certain roads by the Department of Roads and Public Works to Tau Pele. Umso, a disappointed applicant for the tender, launched review proceedings on the grounds that Tau Pele had failed to disclose to the Department that it had been placed under Business Rescue after it had submitted its bid.

While there is no general rule in our law of contract that all material facts must be disclosed and that non-disclosure automatically amounts to misrepresentation, there has been a steady progression towards a general test for deciding whether in a particular case silence amounts to a misrepresentation.

The Court explained the test of involuntary reliance, stating that a party to a contract is expected to disclose certain information if such facts falls within his exclusive knowledge and as a result the other party involuntarily relies on him as the only source of the information. Failure to disclose such information amounts to a breach of the right of the other party to have such information communicated to him and as a result amounts to a misrepresentation and consequently the contract can be set aside.

The Supreme Court of Appeal confirmed the finding of the Eastern Cape High Court that the tender contract awarded to Tau Pele should be set aside on account of the failure to disclosure relevant information pertaining to its financial position, amounting to a misrepresentation.

Read the case here.