Non-reliance and misrepresentation: when is it reasonable to exclude liability?

First Tower Trustees Ltd v CDS (Superstores International) Ltd [2018] EWCA Civ 1396

Summary

The Court of Appeal has confirmed that a clause in a lease excluding liability for misrepresentation could not be relied upon by a landlord who gave false or misleading replies to enquiries to a prospective tenant. These misrepresentations related to the landlord's failure to disclose asbestos problems affecting the property, which it was well aware of when it completed the lease.

The facts

First Tower Trustees Ltd (the "Landlord") leased warehouse premises to CDS (Superstores International) Ltd trading as The Range (the "Tenant") on 30 April 2015 and also entered into an agreement for lease of adjacent warehouse premises. The lease included a non-reliance clause, which stated that:

"The tenant acknowledges that this lease has not been entered into in reliance wholly or partly on any statement or representation made by or on behalf of the landlord."

In its replies to pre-contract enquiries on 16 February 2015, the Landlord stated that it was unaware of any environmental problems relating to the warehouse premises.

However, on 16 and 20 April 2015 respectively, the Landlord received a report and an email which made it aware of asbestos contamination in the warehouse premises. This information was not provided to the Tenant until after completion of the lease on 30 April 2015.

The lease also provided that the Landlord contracted in "their capacity as trustees the Barnsley Unit Trust and not otherwise".

The Tenant sought damages for the costs of remedial works, alternative accommodation and the loss of amenity caused.

The applicable law

Section 3 of the Misrepresentation Act 1967 states that any contractual term which attempts to exclude or limit liability for misrepresentation shall be of no effect except to the extent that it satisfies the reasonableness test set out at section 11(1) the Unfair Contract Terms Act 1977.

Section 11(1) of the Unfair Contract Terms Act 1977 states that a term shall have been a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made.

Arguments before the Court

The Landlord appealed the High Court's first instance decision against it and argued that the non-reliance clause was not within the ambit of section 3 of the Misrepresentation Act 1967 as it was merely a clause setting out the basis upon which the Landlord and Tenant had agreed to be bound. This is known as a "basis clause" and such clauses do not have to satisfy the reasonableness test.

The Landlord also sought to limit its liability for damages under the Misrepresentation Act 1967 on the basis that it had entered into the lease in its capacity as trustees of a specified trust and not otherwise.

The decision

The appeal was dismissed and the High Court decision upheld. The lease did not satisfy the requirement of reasonableness and the Landlord did not limit its liability for the misrepresentation that was made on its behalf.

The Judge discussed the policy behind section 3 of the Misrepresentation Act 1967, namely that its aim is to prevent contracting parties from escaping from liability for misrepresentation unless it is reasonable for them to do so. It was clear that, on these facts, it would be unreasonable to exclude liability for misrepresentation for giving false or misleading replies to enquiries as this would erode their very purpose.

Although the lease limited the Landlord's personal contractual liability to the extent of the trust fund, it was unable to do so for misrepresentation. This was because misrepresentation is not a contractual claim but is one based on negligence or statute. If the Landlord wanted to limit its personal liability for misrepresentation, it should have used far clearer wording in the lease in order to satisfy the statutory requirements of reasonableness. As the exclusion was unreasonable, the Landlord remained personally liable as a trustee for damages for misrepresentation, and which were not damages recoverable under contract.

Our comment

This case demonstrates the importance of pre-contractual enquiries and the continuing duty under the Standard Conditions of Sale to update these as soon as any new information comes to light before completion.

Most property transactions will include an exclusion clause limiting reliance on representations, but allowing replies to enquiries to be relied upon. If a lease purports to go further than this, careful consideration should be given as to whether the wording satisfies the reasonableness test. If it is unreasonable, it will fail to exclude liability with potentially far-reaching consequences.