UK: A Reminder To Get Replies To Enquiries Right

Last Updated: 30 March 2017
Article by Emma Broad and Danuka Amirthalingam

The High Court decision in First Tower Trustees Limited v. CDS (Superstores International) Limited [2017] EWHC B6 (Ch) is a salutary reminder of some of the pitfalls to avoid when providing replies to pre-contract enquiries as well as the limitations of non-reliance clauses. 

Background

On 30 April 2015, First Tower let warehouse premises in Barnsley (Bays 1-3) to CDS. At the same time the parties entered into a conditional agreement for CDS to take a further lease of adjacent premises (Bay 4).

Prior to entering into these arrangements, CDS received from First Tower:

  • a report, held out by First Tower as relating to the premises, which led CDS to believe there were no significant asbestos problems ('the Report'); and
  • replies to CPSEs dated 16 February 2015, of which the critical response was to enquiry 15.7:

    CPSE.1 Enquiry 15.7: "Please give details of any actual, alleged or potential breaches of environmental law or licences or authorisations and any other environmental problems (including actual or suspected contamination) relating to: (a) the Property; or (b) land in the vicinity of the Property that may adversely affect the Property, its use or enjoyment or give rise to any material liability or expenditure on the part of the owner or occupier of the Property."
    First Tower's reply: "The Seller has not been notified of any such breaches or environmental problems relating to the Property but the Buyer must satisfy itself" ('the Reply').

After providing this information, but prior to 30 April 2015 (so before CDS contracted to take the premises), First Tower received an email from a third party consultant reporting a health and safety risk caused by the presence of asbestos in Bays 1-3 which also raised the possibility of asbestos in Bay 4 ('the Email'). First Tower did not alert CDS to this development, nor did it amend its replies to enquiries.

Almost immediately after going into occupation of Bays 1-3, CDS discovered asbestos. Later, before the second lease completed, asbestos was found in Bay 4. CDS terminated the agreement for lease in respect of Bay 4 by exercising a contractual right to terminate, which was triggered by the parties' failure to agree the costs required to make Bay 4 fit for occupation (rather than by any breach of contract by First Tower). In the meantime CDS had incurred significant cost and inconvenience dealing with the asbestos in Bays 1-3.

CDS claimed damages for losses suffered as a result of the unavailability of the premises due to the presence of asbestos. Its claim was based on misrepresentation.

Had there been any misrepresentations?

The court held that both the Report and the Reply amounted to misrepresentations because:

  • it transpired that the Report did not relate to any of the premises; and
  • it was untrue that First Tower had not been notified of any breaches or environmental problems – it had received the Email putting it on alert that there were issues with asbestos. Although the Email post-dated the Reply, there is both a general obligation and, under the CPSEs, a specific obligation to update replies where information comes to light that would render an answer given inaccurate or misleading. The wording in the Reply that "the Buyer must satisfy itself" did not assist – although CDS had been invited to satisfy itself on the issue, that meant doing so in the context of First Tower not knowing of any problems, and this context had ceased to be true.

The judge commented "in general, a landlord does not warrant the state, or condition of the property he is letting. The prospective tenant must make his own enquiries, by survey or otherwise. But if the landlord represents, as here, that he knows nothing of any environmental problems when he is in possession of information clearly pointing to a serious problem, that is when the law will come to the aid of the tenant".

Were the non-reliance clauses effective to estop CDS claiming misrepresentation?

First Tower argued that CDS was estopped from claiming misrepresentation because of the inclusion of the following non-reliance clauses in the documentation:

  • clause 5.8 of the lease of Bays 1-3, which read "the tenant acknowledges that this lease has not been entered into in reliance wholly or partly on any statement or representation made by or on behalf of the landlord" ('the Lease Clause'); and
  • clauses 12.1 and 12.2 of the agreement for lease for Bay 4, which read "the tenant acknowledges ... and agrees that it has not entered into this agreement in reliance on any statement or representation made by or on behalf of the landlord other than those made in writing by the landlord's solicitors in response to the tenant's solicitors' written enquiries... Nothing in this agreement shall be construed as excluding any liability or remedy resulting from fraudulent misrepresentation" ('the AfL Clause').

As these clauses were an attempt to exclude or restrict liability in respect of pre-contractual representations, they fell within the ambit of section 3 of the Misrepresentation Act 1967 and therefore could only be effective if First Tower showed that they satisfied the reasonableness requirement contained in section 11(1) of the Unfair Contract Terms Act 1977.

The court concluded that only the AfL Clause satisfied the reasonableness test. The critical difference between the two clauses was that the AfL Clause allowed CDS to rely upon replies to enquiries whereas the Lease Clause did not. In the words of the judge, the Lease Clause "was not a reasonable clause to put into the lease, because its effect would render the whole exercise of making enquiries and relying upon the answers thereto all but nugatory. I suspect that conveyancing practitioners would be appalled if such clauses gained wide currency and were upheld by the courts".

Accordingly, CDS was not estopped from claiming misrepresentation for the Reply or the Report in relation to the lease of Bays 1-3 (as the Lease Clause was wholly ineffective) or for the Reply in relation to the agreement for lease of Bay 4 (as the AfL Clause allowed reliance on the replies). Instead, CDS was only estopped from claiming misrepresentation for the Report in relation to the agreement for lease of Bay 4 as the AfL Clause effectively excluded liability for the same (the judge noted that First Tower was reasonably entitled to exclude this type of liability).

It was irrelevant that the reason for determining the agreement for lease of Bay 4 was not expressly because of a breach – if the misrepresentation had not been made, then CDS would not have entered into it at all and so would not have suffered any loss.

Consequently, CDS was entitled to damages for misrepresentation which, after taking account of the cost of remediation and of alternative premises during the remediation works, amounted to in excess of £1,000,000.

Practical advice

This case highlights a number of issues principally:

  • non-reliance clauses are not always effective. Where they are included in commercial contracts they are subject to the reasonableness requirement set out in clause (3)(1) of the Misrepresentation Act 1967 (consumer contracts will fall within the ambit of the Consumer Rights Act 2015). This case is a reminder that an attempt to preclude any reliance on replies to enquiries is likely to be treated as unreasonable; and
  • when providing replies to enquiries, do not provide statements such as "not so far as the seller is aware" or "the seller has not received" where the actual intention is that the buyer/tenant should rely upon their own enquiries. If a buyer/seller is to rely upon its own enquiries the reply should state that, but say no more.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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