Silence and fraudulent misrepresentation: Alacran vs. Broadley

Can silence amount to a fraudulent misrepresentation? A commentary on the recent Singapore High Court judgment of Alacran Design Pte Ltd v Broadley Construction Pte Ltd [2017] SGHC 162.

Introduction

Silence and fraudulent misrepresentation have had a long-standing, albeit tenuous, relationship; “mere silence, however morally wrong, will not support an action in deceit”. In the recent case of Alacran Design Pte Ltd v Broadley Construction Pte Ltd [2017] SGHC 162, the Singapore High Court brought clarity to this relationship and the circumstances where silence may amount to fraudulent misrepresentation, specifically when the party in question should have spoken.

Facts

Alacran Design Pte Ltd and Broadley Construction Pte Ltd entered into a contract where Alacran supplied equipment to Broadley for a construction project. Broadley was the sub-contractor of a residential development project and installed equipment for the main contractor, Singbuild Pte Ltd. Around 2015, Broadley could not pay Alacran on some of the delivery orders as it was unable to obtain payment from Singbuild. Alacran and Broadley subsequently had a series of meetings to resolve the issue of payment, which led to the signing of a letter of undertaking (Undertaking).

During the first meeting, Broadley suggested issuing two post-dated cheques to Alacran as they did not have enough money to pay Alacran. When Alacran intended to cash those cheques, Broadley still did not have sufficient money to honour the cheques. During the second meeting, Broadley proposed that an undertaking be issued to authorize Singbuild to pay the outstanding sum directly to Alacran from moneys that Singbuild owed Broadley. Alacran informed Broadley that it made no difference to Alacran who paid the outstanding sum, as long as it was paid in full, and that if Singbuild defaulted on the payment Broadley would remain liable for any outstanding amount. Broadley’s representative remained silent when Alacran’s representative informed him as such, and Alacran took it that Broadley had agreed to what was said. Broadley also did not mention that it would be absolved from its liability to pay Alacran should Singbuild fail to do so.

However, the Undertaking that was subsequently signed included a clause that stated, “This agreement has been agreed by [Singbuild], [Broadley] and [Alacran]. This letter indemnifies [Broadley] and is free of any responsibility and is no longer liable with regards to the outstanding balance with [Alacran].”

As it transpired, Singbuild never paid Alacran the moneys owed despite being chased by Alacran to do so. Alacran attempted to encash the earlier cheques but discovered that Broadley had stopped payment on them. Alacran thus commenced a suit to retrieve the outstanding sum; among other grounds, Alacran argued that it entered into the Undertaking based on fraudulent misrepresentation and therefore the contract should be held voidable, or, due to unilateral mistake, the contract should be held void.

Findings of the Court

Silence amounting to fraudulent misrepresentation

Both parties agreed that the contents of the Undertaking would be based on their oral agreement during the second meeting. The Court held that the Undertaking was indeed a valid agreement, but turned to the issue of whether the Undertaking should stand, in light of Alacran’s claim that it was induced to enter into it due to Broadley’s misrepresentation.

The issue before the High Court was whether silence from Broadley’s representative, when told by Alacran’s representative that Alacran would look to Broadley to discharge the outstanding sum if Singbuild did not pay, could amount to a representation by Broadley.

The High Court reiterated that “mere silence, however morally wrong, will not support an action of deceit” (Wee Chiaw Sek Anna v Ng Li-Ann Genevieve and another [2013] 3 SLR 801, referring to Bradford Third Equitable Benefit Building Society v Borders [1941] 2 All ER 205 at 211). There can be no misrepresentation by omission, although active concealment of a particular state of affairs may amount to representation.

The High Court then sought to consider the surrounding circumstances after considering relevant case law. In Trans-World (Aluminium) Ltd v Cornelder China (Singapore) [2003] 3 SLR(R) 501, it was held that “When silence… or a failure to speak is alleged to constitute misleading conduct or deception, the proper approach to take is to assess the silence as a circumstance like any other act or statement and in the context in which it occurs. Hence, it is necessary to examine the silence with reference to the charge that is made against the defendants”. Silence or omission to inform the other side of pertinent facts may constitute misrepresentation. Where silence is relied upon, it would normally be necessary to show that the silence was maintained in circumstances where the court considered that the party in question should have spoken (Hong Leong Singapore Finance Ltd v United Overseas Bank Ltd [2007] 1 SLR(R) 292 at [194]). Although the pronouncement in Hong Leong was made in the context of when silence may amount to a representation in a claim in estoppel, the High Court held in the present case that it is equally applicable concerning a claim in fraudulent misrepresentation.

The Court found that Broadley’s silence, taken together with the other matters that transpired at the second meeting, amounted to a misrepresentation. The present case was not one where Broadley was merely silent, or had simply omitted to mention to Alacran that the Undertaking was intended to absolve Broadley from all liability to Alacran. Here, Alacran’s representative had conveyed a positive statement to Broadley’s representative that Broadley would remain liable for the outstanding sum if Singbuild did not pay Alacran. With this clearly stated, Broadley should have refuted this if it did not agree. In the circumstances, Broadley was obliged to inform Alacran that Alacran’s position was incorrect or that Broadley did not agree with it. By remaining silent, Broadley had misled Alacran, by giving the false impression that Broadley agreed to what Alacran had stated.

Unilateral mistake applying to other types of contracts

In addition, the High Court also held at [38] that the “doctrine of unilateral mistake has mainly been applied with respect to contracts for sale of goods. However, the Court saw no reason in principle why it should also not apply to other types of contracts such as that which is the subject of the dispute in the present proceedings.” Hence, even if the Undertaking was not voidable pursuant to the fraudulent misrepresentation, it would be void due to Alacran’s unilateral mistake.

Conclusion

Mere silence will not support an action of deceit; silence, however, taken together with the surrounding circumstances, may amount to misrepresentation. While courts are willing to engage with various factual circumstances in order to ensure that parties’ intentions are upheld, prudence is always key to reduce commercial risks and potential litigation in contract formation.

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