First Tower Trustees v CDS (2018) – Limited liability in asbestos misrepresentation case fails the sniff test
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First Tower Trustees Ltd & Another v CDS (Superstores International) Ltd [2018] EWCA Civ 1396
Summary
Under the Misrepresentation Act 1967 s.3 both non-reliance clauses and contractual estoppel were not immune from scrutiny. Clauses like this could not prevent liability from arising if they failed to satisfy the reasonableness test under the Unfair Contract Terms Act 1977 s.11(1). This meant that in this specific case, a landlord wasn’t able to rely on a clause in a lease which would have restricted its liability for representations, where it had misrepresented to the tenant that he had no prior knowledge of potential environmental issues which were affecting the property. Despite this claim, the tenant knew the property had asbestos problems.
Facts of the case
The basis of the case is the landlord of two trustee companies appealed the decision that they were liable for misrepresentation towards to tenant. The landlord had rented out warehouse premises to the tenant with the acknowledgement under cl.5.8 of the lease that it had not been entered into in reliance on any representation made by the landlord. In addition to this, the lease also set out that the landlord contracted in its capacity as trustee of a specified trust and not otherwise. Before the lease was agreed upon and entered into the landlord stated in their pre-contract enquiries that they were unaware of any environmental problems with the property which wasn’t true due to being aware of asbestos contamination. This contamination was severe enough for the need for remedial works and during this period the tenant had to rent other warehouse facilities. Based on these facts the judge found that the tenant had entered into the lease on the basis of the landlord’s misrepresentation that there were no problems with asbestos. Furthermore, he also decided that the use of cl.5.8 in the lease was an attempt to exclude liability for misrepresentation as well as not satisfying the test of reasonableness under the Unfair Contract Terms Act 1977 s.11(1). The landlord’s subsequent argument that their liability was limited to the extent of the trust’s assets was also rejected.
Legal issues
- Was the exclusion clause unreasonable under s.3. of the Misrepresentation Act 1967 or s.11. of the Unfair Contract Terms Act 1977?
- Was the landlord’s liability limited to the value of the trust fund?
Judgement
The clause in question was only an exclusion clause so subject to the reasonableness test under the statutes of the Misrepresentation Act 1967 and the Unfair Contract Terms Act 1977. It was viewed that the judge had not made an error in law in terms of applying the reasonableness test and therefore there was no need for the court to intervene.
In terms of the landlord’s argument to limit their liability to the value of the trust fund, this needs to be contained in the contract using clear language. Hardly describing the capacity in which the landlord wanted to execute the lease does not constitute the intention of limiting their liability to the value of the trust fund. Subsequently, the previous decision that the contract between the landlord and tenant did not have this effect was upheld.
Application
Clauses falling under the Misrepresentation Act 1967 s.3:
This set out contractual estoppel which is where parties are able to bind themselves by a contract to accept a state of affairs even if they are aware that they aren’t legitimate.
The difference between contractual estoppel and other types of estoppel is that it requires no proof of reliance apart from entering into the contract – Springwell Navigation Corp v JP Morgan Chase Bank [2010] EWCA Civ 1221, [2010] 2 C.L.C. 705.
Despite this authority, this position was reconsidered whether there was a contradicting statute in Thornbridge Ltd v Barclays Bank Plc [2015] EWHC 3430 (QB) however this was dismissed.
The attempt to class contractual estoppel as an answer to s.3. or a reliance clause was immune from scrutiny under s.3. is disapproved by the common law in the case Sears v Minco Plc [2016] EWHC 433 (Ch).
Zentralbank Osterreich AG v Royal Bank of Scotland Plc [2010] EWHC 1392 (Comm), [2011] 1 Lloyd’s Rep 123 – When s.3. of the Misrepresentation Act 1967 is interpreted is had to be to give effect to its purpose which is to prevent contracting parties from escaping liability for a misrepresentation unless it is reasonable.
Despite this, when the interpretation of a non-consumer contract occurs, the impugned term only described one party’s obligations. Therefore, the application of the reasonableness test cannot be questioned as such a term was a basic clause. See paras 42-44, 47-51, 59, 66, 90, 111-112 of the judgement.
The question of whether or not a contract term should exclude liability for breach or show that no relevant contractual obligation has been undertaken was an issue based on the construction of contract. However, there is no justification for interpreting s.3. in a way which omitted the latter type of term from its scope. Per Leggatt LJ Paras 89-112.
Clause 5.8. of the lease agreed between the landlord and tenant actually did fall in scope of s.3. of the Misrepresentation Act 1967. If this didn’t exist then the landlord will have definitely been liable for misrepresentation. However, they attempted to rely on it due to it being a contract term and arguing that is satisfied the requirement of reasonableness under the Unfair Contract Terms Act 1977 s.11(1) (paras 40-41, 67).
Despite the landlord attempting to argue that Clause 5.8. of their agreement with the tenant was reasonable under the Unfair Contract Terms Act the judge didn’t view it this way. The main justification for this was the importance of pre-contract enquiries in the field of conveyancing and the landlord had to opportunity to disclose the asbestos issues but decided not to. Secondly, if Clause 5.8. governed the landlord’s liability, replying to enquiries before the contract becomes worthless.
There could be a case although not likely where a clause precluding reliance on replies to enquiries before the contract might actually satisfy the reasonableness test even where those replies were relied on – Lloyd v Browning [2013] EWCA Civ 1637, [2014] 1 P. & C.R. 11. Paras 68-76).
The landlord tried to argue that their liability is limited to the extent of the trust fund however the judge did not view it this way. The justification was that when a person enters a contract in the capacity of trustee this would limit their contractual liability to the extent of the trust fund and therefore would not be personally liable in excess of the fund when using suitable wording – Muir v City of Glasgow Bank (In Liquidation) [1879] 4 App. Cas. 337 and Investec Trust (Guernsey) Ltd v Glenalla Properties Ltd [2018] UKPC 7, [2018] 2 W.L.R. 1465.
The lease agreement had set out that the landlord was contracting as trustee which sets out to try and limit their personal liability in the contract. However, the issue was whether s.2. of the Misrepresentation Act 1967 allowed the landlord to limit their liability in tort or damages.
In reply to this issue set out in Paras 78, 82 and 84-85 the judge stated that:
- English law does not recognise a trustee as having limited capacity or liability vis-à-vis a third party.
- English law does not recognise a liability for damages payable by statute.
- The trustee is liable for damages for misrepresentation which aren’t recoverable in contract.
- If the intention of the contract was to remove a contract law remedy this would have to be identified clearly and the lease between this landlord and tenant had not done that.