First Tower Trustees Ltd & Anor v CDS (Superstores International) Ltd

A contractual term which prevents a party from asserting reliance on a pre-contractual representation excludes liability within section 3 of the Misrepresentation Act 1967. Describing the term as a contractual estoppel or “basis clause” does not avoid the statutory requirement of reasonableness.

Reasonableness depends on the circumstances known or contemplated when the contract was made. In conveyancing, a term which prevents reliance on formal replies to pre-contract enquiries will ordinarily be unreasonable because it deprives those enquiries of their essential function.

A trustee’s contractual limitation of liability does not extend to statutory liability for misrepresentation unless clear words produce that result. Liability under section 2(1) arises by operation of law and is distinct from contractual liability.

The landlords granted the tenant a lease of three warehouse bays and entered into an agreement for a lease of a fourth. Before completion, their agents learned that asbestos made the premises dangerous to enter. That information was not disclosed, despite replies to formal enquiries which conveyed that no relevant environmental problem was known.

The Deputy High Court Judge held the landlords liable for misrepresentation and awarded £1.4 million plus interest: [2017] EWHC 891 (Ch), [2017] 4 WLR 73. He held that the lease’s non-reliance clause was subject to section 3 of the Misrepresentation Act 1967 and was unreasonable. He also held that words limiting the landlords’ capacity to that of trustees did not restrict their statutory liability.

The landlords appealed those conclusions. They additionally sought permission to challenge the refusal of a late amendment based on Jersey trust law and to advance a new measure-of-damages argument.

1. Appeal dismissed. Permission to challenge the refusal of the late Jersey-law amendment and permission to amend the grounds concerning damages were refused. The trial judge had applied the correct case-management principles. The proposed damages argument represented a new case which could have affected the evidence and had not been advanced at trial.

2. A non-reliance term which operates by contractual estoppel falls within section 3 of the Misrepresentation Act 1967 where, absent the term, the facts establish liability for misrepresentation. The statutory question concerns the term’s substantive effect, not its drafting form. A party cannot avoid section 3 merely by describing the term as a “basis clause” or as defining an agreed state of affairs. The distinction between defining primary contractual obligations and excluding liability remains relevant where the scope of contractual obligations is genuinely in issue, but it does not remove a term which excludes independently imposed statutory liability from section 3.

3. Clause 5.8 of the lease therefore had to satisfy the reasonableness requirement in section 11(1) of the Unfair Contract Terms Act 1977. The trial judge was entitled, and correct, to find it unreasonable. It prevented reliance even on formal replies to pre-contract enquiries. That would make an established and important conveyancing process worthless or positively misleading. The parties’ commercial sophistication, legal representation and ability to negotiate did not outweigh that consequence. A clause preserving reliance on written replies, such as the agreement-for-lease clause, stood differently.

4. The words stating that the landlords contracted as trustees “and not otherwise” limited contractual liability but did not clearly limit liability under section 2(1) of the 1967 Act. That liability arises by operation of law and is neither contractual damages nor an incident of contractual liability. English law treats a trustee as personally liable to third parties unless liability is clearly limited by contract. The wording used did not necessarily extend to backward-looking statutory liability for a pre-contractual misrepresentation.

5. Leggatt LJ agreed and emphasised that contractual sophistication is relevant to reasonableness, not to whether section 3 applies. Sir Colin Rimer agreed with both judgments.

1. Court of Appeal (Civil Division): The landlords’ appeal was dismissed. Permission to appeal the case-management ruling and permission to amend the grounds of appeal were refused: [2018] EWCA Civ 1396.
2. High Court, Chancery Division: A Deputy High Court Judge held the landlords liable for misrepresentation and awarded the tenant £1.4 million plus interest. He held that the lease’s non-reliance clause was unreasonable and that the trustees had not limited their statutory liability: [2017] EWHC 891 (Ch), [2017] 4 WLR 73.