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4 The Doctrine Of Utmost Good Faith
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Published:June 2006
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Abstract
English law adopts an adversarial model of contractual negotiations, requiring each party to accept responsibility for its own interests. The law will assist a party that has been induced into a contract by an inaccurate or misleading statement, termed a ‘misrepresentation’. A contract so induced is voidable, meaning that it is liable to be set aside retrospectively through the remedy of rescission. However, there is no general duty to volunteer information, even though it may be evident that such information would be regarded as highly relevant by the other party in deciding whether to contract and, if so, upon what terms. ‘Tacit acquiescence in another’s self-deception does not itself amount to a misrepresentation, provided that it has not previously been caused by a positive misrepresentation. For example, specific performance of a compromise will be granted despite the failure by the plaintiff to disclose the result, favourable to the defendant, of certain proceedings in the litigation. Insurance contracts, however, constitute an exception to the rule: they are contracts uberrimae fidei (of the utmost good faith), and the doctrine of utmost good faith not only reaffirms a passive duty to refrain from misrepresentation3 but also imposes a pro-active duty to volunteer certain information. Breach of such duties affords the innocent party the option of retrospective avoidance of the contract. The fact that the remedy is absolute and uncompromising has led to detailed scrutiny of all aspects of the doctrine.
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