Utmost Good Faith in UK Law

There are certain contracts expressed by the law to be contracts of the utmost good faith where material facts must be disclosed; if not the contract is voidable. Apart from special fiduciary relationships contracts for partnership and contracts of insurance are the leading instances. In such cases the duty does not arise out of contract; the duty of a person proposing an insurance arises before a contract is made; so of an intending partner.

We do not think that the nature of the contract as one of the utmost good faith can be used as a platform to establish a common law duty of care. Parliament has provided that in the case of marine insurance the consequence of a failure to disclose a material fact, and by inference the only consequence, is that the contract may be avoided. It is not suggested that the consequences in non-marine insurance should be different.

English law has, characteristically, committed itself to no such overriding principle but has developed piecemeal solutions in response to demonstrated problems of unfairness. Thus equity has intervened to strike down unconscionable bargains.

Such a course would be so starkly unjust that I would hold that in such a case it would be unconscionable for the court to permit the insurers to avoid the policy on the grounds of non-disclosure. Having regard to the equitable origin of the jurisdiction to avoid a policy for breach by the assured of the duty of the utmost good faith, the court should not be inhibited from giving effect by appropriate orders to the insurers' countervailing duty of the utmost good faith to the assured.

If the deed was not his deed at all, (non est factum) he is not bound by his signature any more than he is bound by a forgery. The document is a nullity just as if a rogue had forged his signature. No one can claim title under it, not even an innocent purchaser who bought on the faith of it, nor an innocent lender who lent his money on the faith of it. It avails the maker nothing, as against him, to say it was induced by fraud or mistake.

What relationship need there then be between any fraud and the claim, if the fraudulent claim rule is to apply? Speaking here of a claim for a loss known to be non-existent or exaggerated, the answers seem clear. The only further requirement is that the part of the claim which is non-existent or exaggerated should not itself be immaterial or unsubstantial: see paragraphs 32–33 above.