European Journal of Law and Economics, 5:287–288 (1998)© 1998 Kluwer Academic Publishers

Book Review: ‘Contractual Non-Disclosure’

Anthony Duggan, Michael Bryan and Frances Hanks, Melbourne: Longman, 1994. ISBN0 582 875 846 pp 225 and xxii.

Reviewed by Antony W Dnes

In this excellent concise book, Duggan et al have examined the difficult issue of non-disclosure in contract law from several perspectives. A particular feature of their approachis the examination of a series of hypothetical canonical cases covering mistake, misrep-resentation, unconscientious dealing and other forms of non-disclosure. They are espe-cially interested in insurance and fiduciary contracts, where there are special requirementsfor disclosure and dealing in good faith in Commonwealth and US Law. Duggan et alargue that mainstream legal scholarship fails to explain why the law sometimes inter-venes, as in the case of a mistake over price, but fails to intervene in others—eg inmistakes over valuation in private contracts. However, they convincingly show that theeconomic analysis of law can explain these distinctions.

The book is divided into four substantial chapters covering the legal background,autonomy (subjective and objective will) theory, doctrines derived from fairness doctrinessuch as equity or altruism, and the economic analysis of disclosure. There is also a goodintroduction and a useful bibliography. As a non-lawyer I found the review of autonomytheory and the examination of the derivation of equity doctrines from Rawl’s ‘veil ofignorance’ particularly interesting. Most economists tend to follow the view of HenryManne (in relation to insider trading) of fairness doctrines as ‘foot stamping,’ which viewDuggan et al examine in Chapter 4. There is indeed more to fairness notions than un-structured protest but not much that helps to clarify the operation of the law of disclosure.As Easterbrook has argued (also in relation to insider trading) information asymmetry isessentially a matter of differential information costs. It is difficult to correct differences ofthis kind in one area without moving on to equalize cost differences throughout theeconomy.

Duggan et al use economic analysis to resolve the different approaches to non-disclosure in canonical cases, covering pricing errors, valuation errors, product defectsand errors concerning extrinsic facts. To cover these cases in detail in this review wouldactually give away the ‘plot’ of the book somewhat. Suffice to say that most of the resultsare well known but are scattered inconveniently throughout the literature.

One result may be quoted to give a flavour of the economics of law in this area. In theclassic US case of Laidlaw v. Organ (1817) a merchant learnt that the British blockade ofNew Orleans was about to be lifted and purchased a large quantity of tobacco from anignorant seller while the price remained depressed. Marshall, C J gave a dictum that thebuyer was not required to communicate his private information advantage, which remainsgood law in Anglo-American contract law. Duggan et al argue that a better rule would

Kluwer Journal@ats-ss5/data11/kluwer/journals/ejle/v5n3art7 COMPOSED: 01/06/98 8:47 am. PG.POS. 1 SESSION: 6

distinguish between cases where the private information is about to become public andthose where use of the private information helps to communicate its substance to themarket. Thus, disclosure in Laidlaw would not have impaired incentives for productiveactivity.

The book is to be thoroughly recommended for advanced undergraduates, graduatestudents and academic practitioners in both law and economics. Its approach combiningdetailed case-law with economic analysis is also to be more widely commended.

Anthony W. DnesUniversity of Hertforshire

288 DNES

Kluwer Journal@ats-ss5/data11/kluwer/journals/ejle/v5n3art7 COMPOSED: 01/06/98 8:47 am. PG.POS. 2 SESSION: 6