In a recent case the Court of Appeal has acknowledged that in the context of commercial contracts, certain circumstances may give rise to a 'duty to speak'.

Facts of the case

The retailer Ted Baker plc (Ted Baker) made a claim in the region of £2 million against its insurers, including AXA Insurance UK plc (AXA), for losses relating to goods stolen by an employee over a sustained period.

The relevant insurance policies included a condition precedent to AXA's liability that Ted Baker would deliver certain documentation required by AXA to investigate a claim. AXA's loss adjusters requested various documents to substantiate the claim such as profit and loss accounts and management accounts. Ted Baker refused without assurance either that its accountancy costs could be recovered pursuant to a Professional Accountants Clause in the policy, or that liability in principle was admitted by AXA. AXA's loss adjusters told Ted Baker they would seek instructions on these issues but never reverted to Ted Baker with a response. In subsequent correspondence AXA/its loss adjusters made no mention of anything being outstanding and Ted Baker understood that the requirement to provide the documents had been 'parked'. In the meantime, the deadline for supplying the documents expired.

Ultimately AXA rejected Ted Baker's claim, asserting, amongst other matters, that Ted Baker was prohibited from bringing the claim as it had not delivered the requested documentation and had therefore failed to satisfy the condition precedent.

Ted Baker brought proceedings arguing, amongst other things, that AXA could not rely on the condition precedent due to an estoppel by representation (that the need for the documents had been 'parked'). At an initial hearing on these issues, the trail judge found against Ted Baker on a number of points including that they had failed to satisfy the condition precedent by not providing the requested documents in time. Ted Baker appealed to the Court of Appeal.

Judgment

Although the appeal was dismissed on other grounds, the Court of Appeal held that AXA could not escape liability on the grounds of Ted Baker's failure to satisfy the condition precedent as, in the circumstances, they had a duty to inform Ted Baker that the documents were outstanding.

Although it was accepted that there had not been any waiver of the need to provide the relevant documentation nor an agreement to 'park' the requirement for its delivery, the Court of Appeal held that an estoppel by acquiescence arising from a failure to discharge a 'duty to speak' was not dependent on a representation, nor was dishonesty or an intention to mislead or "hoodwink" the other party required. Having considered the line of authorities on the so called 'duty to speak' including The Lutetian and Starbev cases, the Court of Appeal concluded that such an estoppel may arise if "in the light of the circumstances known to the parties, a reasonable person in the position of the person seeking to set up the estoppel (here Ted Baker) would expect the other party (here the insurers) acting honestly and responsibly to take steps to make his position plain. Such an estoppel is a form of estoppel by acquiescence arising out of a failure to speak when under a duty to do so."

AXA knew that Ted Baker regarded the issue of production of the relevant documents as being 'parked' and could not therefore escape liability on the grounds of Ted Baker's failure to satisfy the condition precedent: in the circumstances, AXA had a duty to inform Ted Baker that the documents were outstanding but instead remained silent. AXA's failure to inform was misleading and it would be unjust to allow them to escape liability on such grounds: As such, an estoppel by acquiescence arose preventing AXA from subsequently taking the point and being able to rely on Ted Baker's failure to satisfy the relevant condition precedent: "In the circumstances to which I have referred the insurers were, in my view, under a duty to tell TB that the …material was indeed outstanding and was required before the upshot of any instructions was revealed. If they had done so the documents would no doubt have been supplied. Since they did not do so it would be unjust and unconscionable to allow them to escape any liability on the ground of non-compliance with a condition precedent in relation to [that] material."

It was acknowledged that the fact that the insurance contract in question was one of utmost good faith increased the likelihood of a party having a duty to speak, but it was stressed that the outcome was not dependent on this and a duty to speak may arise in commercial contracts.

This case provides helpful commentary as to when a 'duty to speak' may arise in commercial contracts generally and confirms that no dishonesty or intention to mislead is required. It is also notable that in this case the 'duty to speak' was owed to a large commercial organisation in receipt of professional advice.

The case highlights that care should be taken in dealings under commercial contracts to avoid unintentionally give rise to an estoppel argument, particularly where a party may be aware that the other party is under a mistaken belief that a matter may be agreed or is mistaken as to the parties' respective rights and obligations.