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12 September 2018

152: Replies to pre-contract enquiries must be accurate and up-to-date in property transactions

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

This case deals with non-reliance statements and the extent to which they can be used to exclude liability for misrepresentation when giving replies to pre-contract enquiries.

Facts

Two landlords, First Tower Trustees and Intertrust Trustees Limited, entered into the following agreements in respect of warehouse premises with the tenant, CDS:

  • a lease which included the following non-reliance clause: ‘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’; and
  • an agreement for lease which included the following non-reliance clause: ‘The tenant acknowledges and agrees that it has not entered into this agreement in reliance on any statement or representation made by or on behalf of the landlord other than those made in writing by the landlord’s solicitor in response to the tenant’s solicitor’s written queries’.

In replies to pre-contract enquiries, the landlords stated that they were not aware of any environmental problems in respect of the premises. Following these replies being provided, the landlords were notified that the premises contained dangerous amounts of asbestos. This information was not revealed to the tenant.

Remedial works were required. The tenant had to lease alternative premises while these works were being undertaken and they commenced a claim for damages against the landlords.

High Court Decision

The judges found in favour of the tenant:

  • the tenant entered the leases on the basis of the misrepresentation that there was no contamination;
  • the non-reliance statements were attempts to exclude liability for misrepresentation and therefore subject to the Unfair Contract Terms Act (‘UCTA’) reasonableness test; and
  • the non-reliance statement in the lease failed the UCTA reasonableness test because it did not allow the tenant to rely on the landlord’s replies to enquiries. The non-reliance statement on the agreement for lease passed the test because it did include such provisions.

Court of Appeal Decision

The landlord appealed the decision and the points for consideration by the Court of Appeal were as follows:

  • did the Misrepresentation Act apply to the non-reliance statements; and
  • was the non-reliance statement contained in the lease reasonable under UCTA?

The High Court’s decision was upheld. The Court of Appeal found that both non-reliance statements were subject to the Misrepresentation Act as:

  • parties can agree by contract to accept a state of affairs even if they know that state of affairs to be untrue – this is known as contractual estoppel, a recognised common law principle;
  • however this does not negate the impact of any other legal principle or statute restricting contractual estoppel. On this basis section 3 of the Misrepresentation Act is not precluded from applying to a non-reliance statement;
  • the purpose of the Misrepresentation Act is to prevent parties from escaping liability for misrepresentation unless it is reasonable to do so, the ability for a non-reliance clause to get around the policy aim of section 3 would make the legislation ineffective; and
  • the non-reliance clauses used in the two agreements in this matter has the effect of excluding liability for misrepresentation and therefore they are subject to the UCTA reasonableness test.

The Court emphasised that pre-contract enquiries had an important function in conveyancing. If a non-reliance statement excluded liability for misrepresentations contained in replies to enquiries this would render pre-contract worthless as (except in cases of fraud) the landlord would have no liability for their replies.

Conclusion

  • this case provides a clear confirmation that non-reliance clauses are subject to the Misrepresentation Act;
  • it does not invalidate non-reliance clauses but the party seeking to rely on it will need to satisfy the reasonableness test in UCTA;
  • in respect of drafting it is important to ensure that non-reliance clauses carve out the ability for buyers/tenants to rely on replies to written enquiries; and
  • it is also a reminder to emphasise to you seller / landlord client the need to ensure that replies to enquiries are accurate and that if they become aware of any change in circumstances that these are disclosed.

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