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

Landlords misrepresented asbestos contamination in warehouse bays let to CDS, failing to disclose reports in replies to pre-contract enquiries. The Court of Appeal held non-reliance clauses fell within section 3 Misrepresentation Act 1967, were unreasonable, and upheld £1.4m damages.

Facts

First Tower Trustees Ltd and Intertrust Trustees Ltd, as trustees of the Barnsley Unit Trust, granted CDS (Superstores International) Ltd (trading as The Range) a lease of Bays 1-3 and an agreement for lease of Bay 4 at Dearne Mill, Barnsley, on 30 April 2015. Before contract, CDS was supplied with an S2 report purporting to show no asbestos problem. CDS’s solicitors raised Commercial Property Standard Enquiries. Replies to enquiries 15.4(b), 15.5 and 15.7 stated the seller was not aware of environmental problems but that the buyer must satisfy itself.

On 16 April 2015 the landlords’ agents received a William Martin Firefly Limited report indicating asbestos, and on 20 April 2015 an email from VPS stating the premises could not be entered safely without a clean air certificate. Despite paragraph 6 of the enquiries form obliging sellers to update replies, this information was not passed to CDS. The premises were in fact so contaminated with asbestos as to be dangerous to enter.

Mr Michael Brindle QC, sitting as a judge of the Chancery Division, found misrepresentation established and awarded £1.4 million plus interest, covering remediation costs and alternative warehousing.

Issues

The Court of Appeal had to decide:

• Whether clause 5.8 of the lease (a non-reliance acknowledgement) fell within section 3 of the Misrepresentation Act 1967, or was a so-called ‘basis clause’ outside its scope.
• Whether clause 5.8 satisfied the reasonableness test in section 11(1) of the Unfair Contract Terms Act 1977.
• Whether the landlords’ execution of the documents “in their capacity as trustees of the Barnsley Unit Trust and not otherwise” limited their statutory liability under section 2 of the 1967 Act.
• Whether permission should be granted for late amendments to plead Article 32 of the Trusts (Jersey) Law 1984 and to challenge the measure of damages.

Arguments

Landlords (Appellants)

Clause 5.8 was a ‘basis clause’ giving rise to a contractual estoppel, defining the parties’ relationship rather than excluding liability, and therefore outside section 3. If section 3 applied, the clause was reasonable given the parties’ commercial sophistication, legal representation, and ability to negotiate. The trustee capacity wording limited all liability arising from the contract, including statutory liability under section 2. They also sought to rely on Article 32 Trusts (Jersey) Law 1984 to cap liability, and to argue the wrong measure of damages had been applied to Bay 4.

Tenant (Respondent)

Clause 5.8 was in substance an exclusion clause caught by section 3, which was unreasonable because it rendered replies to pre-contract enquiries worthless. The trustee capacity wording limited only contractual liability, not statutory liability for misrepresentation. The late amendments should be refused.

Judgment

Application of section 3

Lewison LJ held that clause 5.8 fell within section 3. The question is one of substance: absent the clause, the landlords would have been liable; the only reason they might not be is the clause. A distinction exists between clauses defining primary obligations (outside section 3) and clauses seeking retrospectively to exclude liability for misrepresentation (within section 3). The existence of a contractual estoppel at common law does not answer the statutory question. Following Cremdean Properties v Nash, Government of Zanzibar v British Aerospace and the reasoning of Christopher Clarke J in Raiffeisen Zentralbank, the policy of section 3 is to prevent contracting parties escaping liability for misrepresentation unless reasonable to do so. Earlier contrary authorities (Thornbridge, Sears v Minco) were disapproved. The obiter remarks of Aikens LJ in Springwell were endorsed.

Leggatt LJ agreed, emphasising that the word ‘basis’ in ‘basis clause’ was misleading and that no rational legislator could have intended section 3 to be avoidable by drafting ingenuity. Where all elements of section 2(1) liability are made out, a clause precluding assertion of those facts is excluding a liability that would otherwise exist.

Reasonableness

The judge was entitled to hold clause 5.8 unreasonable. Unlike clause 12.1 of the agreement for lease (which carved out replies to enquiries), clause 5.8 would allow a landlord to withhold known information and then rely on contractual estoppel, rendering pre-contract enquiries worthless. The appellate court would not interfere with that evaluative judgment.

Trustee limitation

Following Muir v City of Glasgow Bank and Investec Trust (Guernsey) Ltd v Glenalla Properties Ltd, a trustee’s liability is unitary and personal unless limited by clear contractual words. The wording limited contractual liability but did not, by necessary implication, extend to statutory liability under section 2, which is imposed by law and not contractual. Rights conferred by law are not to be taken to have been given up save by clear words (HIH Casualty v Chase Manhattan Bank applied).

Amendments

Permission to appeal the case management refusal regarding Article 32 was refused, the judge having properly exercised his discretion. The late amendment on measure of damages was also refused, being a volte face from the position at trial (Jones v MBNA applied).

Implications

The decision clarifies that non-reliance clauses and clauses giving rise to contractual estoppel are subject to section 3 of the Misrepresentation Act 1967 and must satisfy the reasonableness test in section 11(1) UCTA 1977. Drafting ingenuity cannot circumvent this statutory control. The label ‘basis clause’ should be avoided as confusing; the real question is whether a clause defines primary obligations or seeks to exclude liability that would otherwise arise.

In the conveyancing context specifically, clauses precluding reliance on replies to pre-contract enquiries will rarely be reasonable, given the recognised importance of such enquiries. Practitioners should ensure any non-reliance clause carves out replies to formal enquiries if reasonableness is to be maintained.

On trustee liability, clear words are required to limit liability beyond contract. Standard wording identifying trustee capacity limits contractual but not statutory or tortious liability. Trustees wishing to limit all forms of liability must say so expressly.

The case is of wide significance to conveyancers, commercial property lawyers, and those drafting boilerplate exclusion or non-reliance provisions, reinforcing that statutory policy controlling unfair exclusions cannot be bypassed by formalistic drafting.

Verdict: Appeal dismissed. The judge’s finding of misrepresentation, his conclusion that clause 5.8 fell within section 3 of the Misrepresentation Act 1967 and failed the reasonableness test, and his ruling that the trustee capacity wording did not limit statutory liability for misrepresentation, were all upheld. Permission to amend the grounds of appeal and to appeal the case management decision was refused. Judgment for £1.4 million plus interest stood.

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