A recent Court of Appeal decision highlights the pitfalls of assuming that an ‘exclusion of representation’ clause will work in all circumstances, in a case where asbestos contamination came to light but was not disclosed

In First Tower Trustees Ltd and other v CDS (Superstores International) Ltd [2018] EWCA Civ 1396, 19thJune 2018, the Court of Appeal denied effect to a so-called clause of ‘non-reliance’. These are clauses, very common in commercial contracts, including property and development agreements, whereby one party is deemed not to be relying on any representation or warranty made by the other party.

However, the ruling in First Tower Trustees exposes the limitations of this clause where non-disclosure or misrepresentation of key facts is concerned, in a case involving asbestos contamination, and specifically where the exclusion clause clashed with section 3 of the Misrepresentation Act 1967, the Unfair Contract Terms Act 1977 and responses to pre-contract enquiries.

The case involved a lease of warehouse premises which were found to contain dangerous levels of asbestos. The lease and agreement for lease contained non-reliance statements in favour of the landlord. However, the landlord had also made replies to pre-contract enquiries, stating that it was unaware of any “environmental problems” affecting the premises, but it later failed to qualify this statement when the asbestos issues were subsequently notified to the landlord (but not the tenant).

The Court of Appeal ruled that these clauses attempted to exclude liability for misrepresentation. As such, the clauses were only effective to the extent that they satisfied the reasonableness test set out in the Unfair Contract Terms Act 1977. The Court ruled that a non-reliance statement that did not allow the tenant to rely on the landlords’ replies to pre-contract enquiries was unreasonable, because this effectively meant that the landlords would have no liability for their replies. In the Court’s view, this would render the whole pre-contract queries exercise in conveyancing worthless, which the Court would not allow.