Cleaver & Ors v Schyde Investments Ltd

Under section 3 of the Misrepresentation Act 1967, a term restricting remedies for misrepresentation must satisfy the fair and reasonable requirement in section 11 of the Unfair Contract Terms Act 1977. A standard term limiting rescission to fraud, recklessness or substantial differences in quantity, quality or tenure is not inherently unreasonable. Its validity remains fact-specific. Knowledge of a material planning risk, non-disclosure, and contractual promises to correct earlier replies may combine to make the term unreasonable. Appellate interference with the first-instance assessment is justified only for an erroneous principle or plain and obvious error.

The appellants agreed to sell commercial land to the respondent for development. They gave inaccurate replies to pre-contract planning enquiries and failed to correct them after learning of a planning application that threatened the respondent’s intended development. The contract incorporated Standard Condition 7.1.3, which restricted rescission for innocent misrepresentation. The respondent rescinded, and the Central London County Court ordered rescission and repayment of the deposit while dismissing the appellants’ counterclaim for specific performance or damages. The appeal concerned whether the judge was wrong to find the clause unreasonable under section 3 of the Misrepresentation Act 1967 and section 11 of the Unfair Contract Terms Act 1977.

The Court of Appeal unanimously dismissed the appeal. Etherton LJ gave the judgment, with Longmore and Laws LJJ agreeing.

1. Appellate review. The assessment of fairness and reasonableness under section 11 of the Unfair Contract Terms Act 1977 involves weighing a range of considerations. Applying George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] 2 AC 803 and Overseas Medical Supplies Ltd v Orient Transport Services Ltd [1999] 2 Lloyd’s LR 273, an appellate court must show considerable respect to the first-instance decision and should interfere only if it rests on an erroneous principle or is plainly and obviously wrong.
2. General character of the clause. A term restricting rescission to fraud, recklessness, or a substantial difference in quantity, quality or tenure, while leaving damages available in other cases, can represent a rational commercial allocation of risk. Its long history, common use, Law Society endorsement, the parties’ legal representation, and negotiation of other contractual provisions are relevant considerations. There is no general rule that solicitor involvement makes such a term unreasonable, or that the vendor’s knowledge of the true facts is decisive.
3. Application. The property’s development potential was known to be commercially important. The appellants knew that the planning application was material to the respondent, yet failed to disclose it while entering a contract that removed the respondent’s otherwise available right to rescind. This occurred despite the promise to correct inaccurate enquiry replies and the contractual preservation of reliance on written replies. The judge was entitled to regard that combination as exceptional and to find that the appellants had not discharged the burden of proving reasonableness.
4. Walker v Boyle [1982] 1 WLR 495 was distinguishable because the condition there was materially more draconian, and any broader suggestion that vendor knowledge automatically defeats reasonableness was rejected. Goff v Gauthier [1991] 62 P&CR 388, FoodCo Uk LLP v Henry Boot Developments Limited [2010] EWHC 358 (Ch), Flight v Booth [1834] 1 Bing. (N.C) 370 and Morgan v Pooley [2010] EWHC 2447 did not require a different result.

1. Court of Appeal (Civil Division) — In [2011] EWCA Civ 929, the appeal was dismissed.
2. Central London County Court — On 21 October 2010, His Honour Judge Dight ordered rescission of the contract, repayment of the deposit with statutory interest, and dismissed the counterclaim for specific performance or damages.