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As a general rule, silence will not lead to any legal liability.
Indeed, the image of lawyers telling their clients "not to say
a word" is part of almost every courtroom drama. In the
context of contractual negotiations, however, it is important to
verify that material statements made to the other side are accurate
and comprehensive.
A Duty to Disclose
Generally in a contractual relationship between sophisticated
parties there is no duty to disclose anything to the other side.
Mere silence does not constitute misrepresentation. However, once a
representation is made, as typically happens in the context of
negotiations, it must be accurate. The Alberta Court of Queen's
Bench in Opron Construction Co. v. Alberta has interpreted
this act of making a representation as giving rise to a duty of
disclosure. This duty is an ongoing obligation that extends beyond
the negotiating table; any accidental misstatements must be
clarified once they are discovered so that the other party has
accurate information on which to rely. Similarly, any statements
which, although true when made, have been rendered inaccurate due
to changing circumstances, must be corrected. In the context of
complex negotiations that may take months and result in significant
volumes of documents, parties should take careful note of what has
been said on key issues so that liability is not accidentally
incurred.
The Whole Truth
Merely ensuring the accuracy of statements is not enough,
however. Any statement made must also be comprehensive. The Supreme
Court in National Bank of Canada v. Soucisse held that
once a party to a contract has disclosed some information, it has a
duty to disclose all of that information, completely, because
"partial information is misleading information."
Similarly, where a direct question is asked in the process of
negotiations, it must be answered truthfully, honestly, and fully.
In other words, it must be both accurate and comprehensive.
When Misrepresentation is Actionable
Not every statement made in the course of negotiations attracts
liability as a misrepresentation. This is sensible given the time
and cost that would be needed to vet every representation. Rather,
misrepresentations will only attract liability if they are (1)
material, and (2) induced the other side, relying on the
misrepresentation, to enter into the deal.
According to the Alberta Court of Appeal in L.K. Oil &
Gas v. Canalands Energy Corp, in order to be material, a
"statement must be of such a nature that it would be likely to
induce a person to enter into a contract." Therefore, trivial
or insignificant details should not give rise to concern. Any
statements concerning significant issues, however, must be vetted
for accuracy to prevent the possibility of liability.
Conclusion
Proper diligence concerning the statements made during
negotiations should be a focus of any company. Indeed, employing
proper safeguards to prevent actionable misrepresentations is
relatively straightforward. Firstly, employees and representatives
involved in negotiations should be kept up to date on information
pertinent to central issues surrounding the contract so that
representations or responses to questions by the other party can be
answered fully the first time. Secondly, representations made
concerning material issues, should be recorded and reviewed so that
errors may be corrected and accurate statements may be kept up to
date with changing circumstances.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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