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Do parties always have to act in good faith? Does fraud really 'unravel everything'? Is it fraudulent to keep information away from someone?
Following recent developments, Advocate Olaf Blakeley unravels the nuances of contract law in Jersey...
If you have ever been involved in a legal dispute involving a contract governed by Jersey law, you may be aware that Jersey contract law’s origins lie in French law.
However, Jersey contract law has evolved as time has marched on, and it is fair to say it is now a distinct breed of legal principles, even though it may share characteristics similar to other jurisdictions.
I recently represented clients in a legal dispute concerning allegations of fraud and how that affected the contractual agreement. It is an interesting area of legal thinking. In English law, there is a maxim regarding fraud on legal relationships which was set out by Lord Denning in a judgment: ‘Fraud unravels everything.’
If a party to a contract has practiced fraud on another, then the contract can be set aside and financial penalties may also be payable. The principle also applies under Jersey law, and rightly so. It can’t be right that a party to a contract deceives another party and that such conduct is acceptable.
Pictured: Advocate Olaf Blakeley.
However, what constitutes fraud is not always clear – in some circumstances, it may be a trap for the unwary. In Jersey, fraud is often referred to by the French legal term ‘dol’ and what conduct is and is not ‘dol’ has recently been redefined. A contract affected by dol can, generally, be set aside.
Dol is presumed to have affected a contract for the sale of a property if the property is sold for less than half of its value. This is the principle of ‘déception d’outre moitié du juste prix’. It is presumed by the law that no-one sells their property for less than 50% of the value and accordingly, such sales give a rise to a presumption that some sort of fraud has occurred. This legal principle has existed for hundreds of years in Jersey and does form part of Jersey law. I was involved in a case in which I represented a client who had been misled over the price of some land and I successfully had the contract of sale set aside for the client. Unsurprisingly, he was very happy.
Under English law, a party who enters into a contract on the basis of a misrepresentation may be entitled to have the contract set aside and obtain damages. Again, that seems the right approach. If I sell you a diamond and tell you that it once belonged to a famous actress, but that statement was false and was at least partly the reason you entered into the contract, then you have been induced to contract as a result of a misrepresentation.
Why should you have to be bound by the contract? While the remedy available to you may differ, innocent, negligent and fraudulent misrepresentations give rise to remedies. This English Law approach also applies in Jersey, although its origin differs.
Pictured: What happens if you are sold a diamond and wrongly told that it belonged to a famous actress?
But, interestingly, does Jersey law impose a duty of good faith on contracting parties? Is there a duty between parties to act in good faith? The question was previously raised from time to time, but left unanswered because the courts found it unnecessary on the particular facts of those cases to actually have to answer it.
However, the Royal Court has recently grabbed the issue by the scruff of the neck and given it a good old shaking. Except for particular types of contract, the court has decided there is no implied term or obligation to practice good faith. A party is free to pursue their own commercial interests without being worried that doing so may risk the reliability of the contractual agreement.
That same recent case (known as the ‘Hard Rock’ case) also examined whether a contract may be open to attack if a party has been fraudulent by keeping back information from the other party. The French legal principle is known as ‘dol par reticence’ or ‘reticence dolosive’.
Pictured: "The Royal Court has recently grabbed the issue by the scruff of the neck."
One of Jersey’s leading cases on dol was a case in 2005 between Steelux Holdings Ltd and an individual, Edmonstone. Coincidentally, I was representing one of the parties. The Royal Court in that case stated that silence by one party to an agreement could, in certain circumstances, amount to fraud. However, the Hard Rock case has set the record straight and, as, a general rule, fraudulent silence is not part of Jersey law.
Are these recent changes good or bad? In my opinion, neither.
When it comes to commercial contracts, the terms in the contract should set out the extent of the obligations of the parties. If a party wants to guard against fraudulent silence or wants to import obligations of good faith, then insist on such obligations in the terms of the contract. There is nothing wrong in insisting that a party provides warranties, guaranties, and gives specific assurances and by importing those conditions as terms in the contract then the parties our bound by them. This happens in any event in contracts of insurance – such contracts are known to be contracts of the ‘upmost good faith’ and impose such duties on the parties.
A party who wants to protect themself should simply insist on a term requiring that the other party deals with them applying the upmost good faith. That will provide the protection the Hard Rock case has now set out doesn’t ordinarily apply.
