An exclusion of liability in a lease failed the test of reasonableness under the Misrepresentation Act 1967

Where a clause in a contract seeks to limit or exclude liability for misrepresentations, the validity of such a clause may be subject to a reasonableness test: section 3 Misrepresentation Act 1967. In First Tower Trustees Ltd v CDS (Superstores International) Ltd [2017] PLSCS 51, tenants of warehouse premises sought to hold their landlord to account for statements made in replies to pre-contract enquiries confirming that the landlord was unaware of any environmental problems relating to the property. Several weeks after replying to the enquiries, the landlord was advised that there was a problem with asbestos, but it did not pass this information on to the tenant before completing the lease. The tenant discovered asbestos in the premises soon afterwards and was unable to take up occupation until the asbestos was removed. Was the landlord liable for the losses suffered by the tenant as a result? Or was it entitled to rely on a provision in the lease purporting to exclude liability for replies to pre-contract enquiries? The clause confirmed 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”. Are non-reliance clauses exclusion clauses? The landlord argued that the clause confirmed the basis upon which the parties had contracted and was not an exclusion clause. But the Court of Appeal had treated a similar provision in Springwell Navigation Corporation v JP Morgan Chase Bank [2010] EWCA Civ 1221 as being “in substance… an attempt to exclude or restrict liability”, and the judge took a similar view here. In his view, the clause attempted to exclude or restrict liability by retrospectively altering the character and effect of what had been said and done. Therefore, section 3 of the Misrepresentation Act 1967 was engaged. This meant that the judge had to decide whether the clause was reasonable in all the circumstances. Both parties had been legally represented. They had equal bargaining power and were not dealing on the landlord’s standard terms. Even so, the judge decided that the clause was unreasonable because representations made in written replies to enquiries made by the tenant’s solicitors before the grant of the lease were not excluded from the operation of the clause. The judge commented that, were he to have held otherwise, raising and replying to enquiries would become a worthless and, indeed, positively misleading exercise. He did not think that this was reasonable – and suspected that conveyancers would be appalled if such clauses gained wide currency and were upheld by the courts. The landlord sought to limit the damages payable to its tenant because it was a trustee. The lease stated that it had contracted in its capacity as the trustee of a specified trust and the landlord argued that its liability was limited to the extent of the assets of that trust. Conveyancers take note: the judge rejected the defence on the ground that the clause dealt only with contractual liability. Although a claim under the 1967 Act had to result from a contract, it did not follow that a limitation of contractual liability extended, without words to that effect, to pre-contractual liability. It seems, therefore, that trustee limitation provisions should also refer to any other connected non-contractual claims. Allyson Colby is a property law consultant