In the recent decision of First Tower Trustees Ltd and other v CDS (Superstores International) Ltd , the Court of Appeal held that section 3 of the Misrepresentation Act 1967 (‘the 1967 Act’) applied to non-reliance statements (or such other clauses seeking to preclude an actionable misrepresentation claim), clarifying an area of long-standing uncertainty in the law.
Section 3 of the 1967 Act provides that any contractual term seeking to exclude or restrict liability for misrepresentation, or any remedy for misrepresentation available to the representee, must satisfy the reasonable test stated in section 11(1) of the Unfair Contract Terms Act 1977 (‘UCTA’).
Non-reliance statements operate by way of contractual estoppel – the representee is estopped from asserting that it relied on the relevant misrepresentation.
Representors had in prior cases asserted that such statements constitute a ‘basis clause’ (preventing liability from arising at all, as distinct from excluding liability that has arisen) and thereby circumventing the UCTA reasonable test.
The Landlord had entered into an agreement for lease and lease with the Tenant, containing the following non-reliance clauses:
The Landlord intimated in its replies to pre-contract enquiries that they were not aware of any environmental issues at the property. On subsequently becoming aware of dangerous levels of asbestos at the premises, the Landlord failed to update its replies and notify the Tenant.
The Tenant sued for various losses, including for remedial works and relocation costs.
The Court of Appeal, in upholding the High Court’s findings, held that section 3 of the 1967 Act did apply to non-reliance statements.
Statute operated to restrict the parties’ freedom to operate on the basis of contractual estoppel, to give effect to the general policy preventing parties from precluding liability for misrepresentation where it was not reasonable for them to do so.
Both clauses under consideration where subject to the UCTA reasonableness test.
As to whether such clauses were ‘basis clauses’ or clauses excluding misrepresentation, it was held that such a distinction is valid at contract law (the distinction having bearing up the party’s primary contractual obligations).
However, where a duty is imposed by the law of tort, the distinction between a clause excluding liability and one preventing liability from arising in the first place is immaterial. The legislature must have intended that such clauses would fall within the scope of the UCTA reasonableness test.
Notably, and in accordance with prior conveyancing decisions, the Court held that only the non-reliance statement in the Agreement for Lease was reasonable, as this clause expressly provided that the tenant may rely on the landlord’s replies to pre-contract enquiries.
This decision confirms that section 3 of the 1967 Act does apply to non-reliance statements.
The case also illustrates the importance of updating pre-contract enquiries as information surfaces in the course of a transaction, and the need to notify the buyer/tenant accordingly if matters change prior to the date of completion.
Further, the decision demonstrates that such non-reliance clauses should include wording specifically providing that buyers/tenants can rely on replies to pre-contract enquiries given by the landlord/seller.
The parties to property transactions should seek advice at an early stage. For assistance in such matters, please contact our property teams: