Precontractual Duties of Disclosure: A Comparative and Economic Perspective

Abstract

If during precontractual negotiations a person deliberately keeps quiet about facts which he knew or should have known were of particular importance to the other party that party may avoid the contract on the ground of deceit if, and only if, a duty of disclosure can be found to exist. What are the conditions that must be satisfied to assume the existence of such a duty of disclosure? The European legal systems merely offer vague formulas with little or no operational power. Can economic theory provide more precise criteria? The general principle should be that a negotiating party must proffer information in his possession which is material to the other party's decision. However, economic analysis suggests that a party should be allowed to withhold material information if the information is “productive” and was costly to obtain unless its acquisition and disclosure were owed under a contract for value. These rules are discussed in the light of a number of cases from various European jurisdictions.