When Silence Is Misleading: The Expanding Scope of Commercial Disclosure Obligations

In Australian commercial law, silence is not always golden. Increasingly, the failure to speak, particularly in contractual negotiations or investor communications, may amount to misleading or deceptive conduct. As regulatory expectations heighten, and courts refine the boundaries of commercial honesty, directors and senior executives must revisit the assumption that “no comment” or strategic omission is a safe course of action.

The Legal Foundation: Section 18 and Beyond

Under section 18 of the Australian Consumer Law (ACL), a person must not, in trade or commerce, engage in conduct that is misleading or deceptive, or is likely to mislead or deceive. This provision is deliberately broad and applies to conduct of all kinds, including statements, representations, and—importantly—silence.

While section 18 does not contain a general duty of disclosure, the courts have consistently found that silence can be misleading where there is a reasonable expectation that relevant information would be disclosed. In Demagogue Pty Ltd v Ramensky (1992), the Federal Court held that mere silence may, depending on the circumstances, convey a misleading impression. Where a party selectively discloses favourable facts while omitting material risks, or remains silent in the face of a known misconception, they may be in breach of section 18. This is particularly true where a duty to correct arises, such as in pre-contractual representations, due diligence settings, or investor updates.

Strategic Silence in Contract Negotiations

Commercial parties often withhold information in negotiations, whether for tactical advantage or because they believe no legal obligation exists to disclose internal concerns, risk forecasts, or future intentions. However, this approach can be perilous. If silence creates a false impression or leaves a counterparty under a misapprehension that the first party is aware of and fails to correct, a finding of misleading conduct may follow.

For example, if a party negotiates a long-term services contract knowing that it intends to exit the market or undergo structural change rendering future performance uncertain, silence on that point may amount to a misrepresentation by omission. Courts have found that conduct in negotiations is not shielded from statutory scrutiny simply because the parties are sophisticated or represented by lawyers.

The case of Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) reaffirmed that, depending on the relevant factual circumstances, a failure to disclose matters necessary to correct earlier representations—whether made expressly or by implication—can constitute misleading conduct. Boards must ensure that material commercial risks and limitations are disclosed in contexts where a reasonable counterparty would expect that disclosure, or where prior representations would otherwise be rendered misleading.

Silence in Investor and Market Communications

Public and private companies face particular challenges in balancing strategic discretion with disclosure obligations. While the continuous disclosure obligations of ASX-listed companies are well established under the Corporations Act 2001 and ASX Listing Rules, even unlisted companies and directors may fall foul of the law if they allow investors or stakeholders to act on materially incomplete or inaccurate information.

The courts have recognised that where directors or executives issue statements that appear full and frank, but omit critical context or adverse developments, silence can be actionable. Similarly, where companies remain silent in response to market rumours, performance assumptions, or questions from investors—while knowing the market is operating under a false impression—they may be exposed to both private and regulatory action.

ASIC has shown an increasing willingness to pursue enforcement where silence is perceived to have caused harm to the investing public and have the power to compel an individual or entity to make corrective disclosures. Directors must ensure that all outward communications, including investor briefings, performance forecasts, and website content, are reviewed not only for accuracy but for completeness.

Silence in Franchising and Disclosure Regimes

In regulated industries such as franchising, silence is not merely risky—it may be unlawful. The Franchising Code of Conduct imposes mandatory disclosure obligations, including a requirement to provide updated disclosure documents and notify franchisees of materially relevant facts. Failing to disclose matters such as pending litigation, changes in ownership, or significant operational risks may not only constitute misleading conduct under the ACL but also give rise to penalties for breach of the Code.

The risks are further amplified where standard form contracts contain clauses that purport to disclaim reliance on pre-contractual representations. Australian courts have made clear that such clauses do not override statutory obligations or protect a party from liability for misleading conduct. Directors in franchising, licensing, or distribution-based businesses should ensure disclosure practices are not treated as procedural formality but as substantive compliance issues.

A Higher Standard of Commercial Honesty

Ultimately, the evolving case law reflects a broader trend: the law expects a higher standard of commercial honesty than many businesses appreciate. Silence is no longer a neutral posture. Directors must ensure that omissions are not creating false impressions or omitting facts that render prior conduct misleading.

Risk management in this context requires more than legal disclaimers. It demands a culture of disclosure, board-level awareness of public-facing representations, and proactive internal review of marketing, negotiation and reporting practices. Legal teams must be empowered to assess the risk not only of what is said, but of what is left unsaid.

At BlackBay Lawyers, we work with boards and executive teams to review commercial practices and disclosures through a legal risk lens. Whether in contractual negotiations, stakeholder reporting or regulatory compliance, our focus is on ensuring that silence does not inadvertently become a source of liability.

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ABOUT THE AUTHOR

Michael Wells joined BlackBay Lawyers having retired from a professional rugby career spanning over a decade. He brings the meticulous attention to detail and results driven approach that is required in elite sport to his legal practice.

Prior to joining BlackBay, Michael worked as a Lawyer for Ashburton Services, the legal team servicing the entire investment portfolio of Tattarang and the Minderoo Foundation. This role allows Michael to leverage the knowledge gained across a diverse range of legal matters to accommodate various client matters including: commercial matters, corporate law and regulatory advice, property and employment.