F. Limiting liability for misrepresentation

1. Clauses in contracts

Steps may be taken to try to minimise or exclude liability for misrepresentation by, for instance:

• Inserting an exclusion clause into the contract which limits liability generally.

• Including wording in the entire agreement clause of a contract which excludes liability for misrepresentation (alternatively, this wording may be added as a standalone clause or included in the general exclusion clause).

• Including a non-reliance statement in the contract.

• (In the context of a professional adviser.) Including provisions defining the scope of the adviser's duty in a letter of engagement.

• (In the context of a sale of land.) Incorporating the Standard Commercial Property Conditions into a contract for the sale of land. The Conditions limit the availability of both damages and rescission for pre-contract representations (SCPC 9 - although this Condition will often be expressly amended by the parties.

The effectiveness of such provisions will depend upon the application of the Consumer Rights Act 2015 (which applies to business to consumer contracts from 1 October 2015) and the Unfair Contract Terms Act 1977 (UCTA), which applies to business to business contracts.

Statutory controls in business to business contracts

A term which excludes or restricts liability for misrepresentation resulting in death or personal injury caused by negligence is wholly ineffective (section 2(1), UCTA).

In the case of other loss or damage, a term which excludes or restricts liability for misrepresentation, or which excludes any remedy for misrepresentation, is enforceable only to the extent that it satisfies the reasonableness test under UCTA (section 3, Misrepresentation Act 1967).

However in Trident Turboprop (Dublin) Limited v First Flight Couriers Limited [2009] EWCA Civ 290, the Court of Appeal has held that section 3 of the Misrepresentation Act 1967 does not apply to international supply contracts by virtue of section 26 of the Unfair Contract Terms Act 1977 (UCTA).

As to what is reasonable and what is not, the assessment will be made by reference to the circumstances that were, or ought reasonably to have been, known to the parties when the contract was made (section 11(1), UCTA). It is for those claiming that a contract term satisfies the requirement of reasonableness to show that it does (section 11(5), UCTA).

UCTA contains a non-exhaustive list of guidelines for determining the reasonableness of exclusion or limitation of liability for misrepresentation (Schedule 2, UCTA):

• Bargaining strength of the parties (including alternatives open to customers, for example, ability to insure).

• Any inducement given to the customer.

• Whether the customer could enter into a similar contract with other persons without the disputed clause.

• Whether the customer knew (or ought reasonably to have known) of the existence and extent of the term (having regard, among other things, to any custom of the trade and any previous course of dealings between the parties).

• If liability is excluded or restricted upon non-compliance with a condition, was it reasonable at the time of contract to expect that compliance would be practicable.

• Whether the goods were manufactured, processed or adapted to the special order of the customer.

As the guidelines in Schedule 2 are non-exhaustive, the court may consider other matters in determining whether a term is reasonable (W Photo Print Ltd v Forward Trust Group Ltd and Another (unreported, 5 March 1993)).

The issue of reasonableness will be looked at in the context of each particular case (Walker v Boyle [1982] 1 All ER 634). It may be difficult for the representor to show that an exclusion clause is reasonable. Note that in one case the High Court decided that it was unreasonable to exclude liability for a deliberate misrepresentation on a matter that the representor knew to be of importance to the claimant (Pankhania v London Borough of Hackney [2002] EWHC 2441 (Ch)).

Where a representation is qualified by words such as "not so far as the seller is aware", this and similar phrases are treated by the courts as an implied representation that the seller and the seller's solicitors (where they have been involved in the preparation of the representations, typically in the case of replies to pre-contract enquiries) have no actual knowledge of a relevant matter and that they have made all the investigations that a prudent seller and seller's solicitor would be expected to have made (William Sindall PLC v Cambridgeshire County Council [1994] 1 WLR 1016).

Common law controls

A term which excludes or restricts liability for fraudulent misrepresentation is wholly ineffective as a matter of public policy.

If an exclusion clause is ambiguous or uncertain, it will generally be construed against the party trying to rely on it (the contra proferentem rule). As such, to be certain that a general exclusion clause covers misrepresentation, specify that the clause covers misrepresentation or tort, as well as breach of contract.

2. Non-reliance statements

Non-reliance statements are commonly used to restrict liability for misrepresentation. A non-reliance statement prevents liability in misrepresentation arising because it creates an estoppel that negates the reliance element required to establish an actionable misrepresentation. Accordingly, non-reliance statements are included in commercial contracts and documents of all kinds. However, it is well established that the exclusion of liability for misrepresentation has to be clearly stated. Whether a clause has this effect will depend on the proper construction of the wording (Axa Sun Life Services Plc v Campbell Martin Ltd [2011] EWCA Civ 133).

A non-reliance statement works by giving rise to an estoppel preventing the representee from bringing a claim for misrepresentation. In Peekay Intermark v Australia and New Zealand Banking Group [2006] EWCA Civ 386, the Court of Appeal held that, where parties to a contract have agreed that a certain state of affairs will form the basis of their transactions, they are estopped from asserting that the true facts were different. This is referred to as contractual estoppel. The Court of Appeal subsequently confirmed the concept of contractual estoppel in Springwell Navigation Corp v JP Morgan Chase Bank [2010] EWCA 1221. Aikens LJ said that there was no legal principle that prevents parties from agreeing to assume that a certain state of affairs exists at the time the contract is concluded, or has existed in the past, even if that is not the case. A contract may be made on the basis that present or past facts are as stated and agreed by the parties.

It has been argued that contractual estoppel is a species of estoppel by convention, and therefore a representor can only rely on a non-reliance statement where it can demonstrate that it would be unconscionable for the representee to resile from the agreed "conventional facts". The Court of Appeal in Springwell rejected this argument.

Over the years, there has been considerable debate over the question of whether a non-reliance statement constitutes an attempt to exclude liability for misrepresentation (and is therefore subject to section 3 of the Misrepresentation Act 1967).

The Court of Appeal has now put the matter beyond doubt. It is clear from Springwell that a non-reliance statement is always potentially an exclusion. Citing Christopher Clarke J in Raiffeisen Zentralbank Osterreich AG v Royal Bank of Scotland plc [2010] EWHC 1392, the Court of Appeal said that, when faced with a non-reliance statement, there are two relevant questions of fact:

• Does the non-reliance statement have the effect of excluding or limiting the alleged representor's liability for misrepresentation, or the remedies available to the alleged representee for misrepresentation?

• If so, is the exclusion or limitation reasonable for the purposes of UCTA?