Silence is often perceived as harmless, but in the realm of contractual negotiations it can be as misleading and damaging as an outright lie. This notion was unpacked in Pratt v Lactalis South Africa (Pty) Ltd (668/2022) [2026] ZAWCHC 237 (15 May 2026), where the Western Cape High Court was required to consider when a failure to disclose material facts constitutes fraudulent misrepresentation by omission, particularly in the context of a mutual separation agreement.
The plaintiff was a senior employee and sales director of the defendant, Lactalis South Africa (Pty) Ltd. In January 2021, following a breakdown in his relationship with senior management, the parties concluded a written mutual separation agreement regulating the termination of his employment. The agreement contained a “full and final settlement” clause as well as no representation clause.
Shortly after the conclusion of the agreement, Lactalis discovered that during 2020 the plaintiff had entered a private financial arrangement with one of its customers. On 19 May 2020, the plaintiff agreed to advance approximately ZAR 300,000 in loans to the customer’s business, earning interest of 15% per month and yielding returns of approximately ZAR 45,000 per month until 1 February 2021. The plaintiff also manipulated Lactalis' B-BEE policy to advance his own business interests while remaining significantly indebted to Lactalis. His B-BEE status further enabled him to receive preferential discounts and rebates monthly.
Lactalis alleged that the plaintiff had fraudulently misrepresented material facts by omitting to disclose this arrangement before concluding the separation agreement. The dealings were conducted through personal email accounts and included cash payments, suggesting an intention to keep the relationship confidential and thereby perpetuate the misrepresentation. By the time the arrangement came to light, the plaintiff had received approximately ZAR 372,000 while Lactalis was unable to recover close to ZAR 4 million in outstanding debt from the same customer.
Upon discovering these facts, Lactalis halted payment under the agreement and purported to rescind it on the basis that it had been induced by fraudulent misrepresentation, the plaintiff’s failure to disclose the conflict of interest. The plaintiff instituted proceedings to enforce the agreement while Lactalis contended that its cancellation had been validly effected. The central issue before the court was whether the non-disclosure constituted a fraudulent misrepresentation entitling Lactalis to rescind the agreement.
As a starting point, the court reaffirmed that a misrepresentation may arise not only from an express statement but also from silence where a legal duty to speak exists. While South African law does not impose a general duty to disclose all material facts, such a duty arises in certain circumstances, including where a fiduciary relationship exists or where material facts lie within the exclusive knowledge of one party and ought to be disclosed according to the legal convictions of the community.
In New Adventure Investments 19 (Pty) Ltd v The Trustees for the Time Being of the SAS Trust, Moosa J held that the requirements for fraudulent misrepresentation include that: the undisclosed fact must be material; the omission must be intentional and aimed at inducing the other party to conclude the contract; and there must be a legal duty to disclose the fact. Where these requirements are met, the contract becomes voidable at the instance of the innocent party, who is entitled to rescind it.
Applying these principles, the court found that the plaintiff’s conduct demonstrated a deliberate intention to conceal the relationship. This was evidenced by the use of personal communication channels, the receipt of cash payments and the fact that the plaintiff had previously disclosed other business interests that posed no conflict. The omission was accordingly found to be fraudulent rather than negligent and was causally linked to the conclusion of the separation agreement, which Lactalis would not have entered had it known the true position.
Furthermore, the court found that the arrangement placed the plaintiff in a position where he stood to benefit personally from funds that could otherwise have been used to reduce the customer’s indebtedness to Lactalis. The court also confirmed that contractual provisions excluding reliance on representations do not protect a party where fraud has been established. Fraud vitiates consent and entitles the innocent party to rescind an agreement notwithstanding the presence of full and final settlement or non-reliance clauses. The court accordingly upheld Lactalis’ rescission of the agreement and dismissed the plaintiff’s claim.
This judgment serves as an important reminder that silence, in circumstances where a duty to disclose exists, may constitute actionable fraud. It further underscores the heightened disclosure obligations resting on senior employees and highlights the limits of contractual protections in cases of dishonesty. Parties negotiating settlement and termination agreements should ensure that all material facts, particularly those relating to conflicts of interest, are properly disclosed. Failure to do so may result in the rescission of contractual agreements and expose parties to significant legal consequences.
