Lloyd and others v Browning and another [2013 EWCA Civ 1637]

Summary

In this recent decision, the Court of Appeal found that the sellers of a property had misrepresented the position regarding planning permission to the buyers. Nonetheless, the non-reliance clause in the sale contract excluded the sellers' liability for damages.

Although this decision does not establish any new law, the judgment sets out a useful examination of the factors that are relevant in determining whether or not a non-reliance clause satisfies the "reasonableness test". This is an extremely important point for any parties entering into sale contracts.

The law 

Misrepresentation

Misrepresentation means a false statement of fact made by one party to the other, which induces the innocent party to enter into a contract. The innocent party must have believed the statement to be true and relied upon it to a material extent when making their decision.

A party pursuing a claim for misrepresentation may seek rescission, where the contract is terminated as if it never existed, damages for any losses, or both.

Enforceability of non-reliance clauses

As this case shows however, even if one party has misrepresented the position, the innocent party may still be prevented from pursuing a claim if the contract contains a non-reliance clause. These clauses are not unusual in property contracts, such as sale or lease agreements.

Key points to note on whether the clauses are enforceable include:

  • Any clause which seeks to limit or exclude liability for fraudulent misrepresentation will be wholly ineffective as a matter of public policy;  
  • Any clause seeking to limit or exclude a party's liability for misrepresentation is enforceable only to the extent that it satisfies the "reasonableness test" set out in section 11(1) of the Unfair Contract Terms Act 1977 ("UCTA");  
  • In order to satisfy the "reasonableness test" UCTA requires the clause to be a "fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made";  
  • UCTA provides a non-exhaustive list of guidelines which should be considered when determining whether a clause satisfies the requirement of reasonableness; and  
  • Any ambiguity in a non-reliance clause will be construed against the party seeking to rely on it.

The facts

In this case, the Defendants were looking to sell their property with the benefit of planning permission to convert a barn to residential use. The original plans submitted to the local planning authority included an extension to turn the barn from an L-shape into a U-shape. It was subsequently discovered that this was contrary to local planning policies and so the Defendants revised the plans to exclude the extension. However, the revised plans did not appear in the sales particulars.

The Claimants were attracted to the property because of its new shape. The extension was very important to them. Throughout the negotiations and at all meetings prior to the sale, the Defendants produced the original plans including the extension to the Claimants.

In due course, the Claimants instructed both planning consultants and solicitors to act on the purchase of the property. They told their solicitors that the planning issues had been dealt with directly between the parties. The solicitors did not raise any pre-contract enquiries about the planning permission. Unfortunately the local Council had not put the new plans on their records, and whilst the lack of reference to the extension was noted by the Claimants' planning consultant, the point was not taken further.

The parties proceeded to exchange contracts for the sale of the property. The contract included a special condition, which was a non-reliance clause that excluded liability arising from reliance on any statement made by the Defendants or their agents, apart from written statements made by the Defendants' solicitors in replies to pre-contract enquiries or otherwise in correspondence ("the Clause").

Approximately two weeks after the sale completed, the local planning authority notified the Claimants that the planning permission did not authorise the extension shown on the original plans. The Claimants produced evidence that the difference in value of the property with and without planning permission for the extension was £55,000 and sought damages for misrepresentation. The Defendants disputed liability and relied on the Clause.

The first decision

At the original hearing, the Court preferred the Claimants' evidence, and found that the Defendants had misrepresented the position by showing the original plans and failing to refer to the amended plans. This had induced the Claimants to enter into the contract. Consequently there had been a misrepresentation. However, the Defendants' liability was excluded by the Clause, and so they were not liable to compensate the Claimants in damages. 

The court of appeal decision

The Court of Appeal upheld the original decision. It then went on to examine in detail whether the Clause was fair and reasonable as required by UCTA.

The Court held that, when deciding whether or not a non-reliance clause satisfies the "reasonableness test" in UCTA, the question is not whether the clause is generally capable of being fair and reasonable, but whether it is a fair and reasonable clause in the context of that particular contract.

The judges set out the following factors to explain their decision:

  • Non-reliance clauses are not intrinsically objectionable. Their purpose is to achieve certainty for both parties, and to prevent disputes about oral statements made before exchange of contracts.  
  • Both the Claimants and the Defendants had legal representation. Additionally, all parties knew that the Claimants had instructed architects and planning consultants.  
  • Contracts for the sale of land are formal documents designed by law to require that all agreed terms are set out in one contractual document signed by each party. Again, this is for certainty.  
  • The Clause was not a non-negotiable clause hidden away in the small print. It was a special condition that had been agreed between the parties' legal representatives in circumstances where both parties had equal negotiating positions.  
  • The Clause was one promulgated by the local branch of the Law Society and was commonly used in the local area.  
  • If the Claimants had wanted to rely on the representations made to them by the Defendants regarding the extension and planning permission, the Clause permitted them to do so by raising a pre-contract enquiry or insisting on written assurances from the Defendants' solicitors.  
  • The pressure to exchange contracts came from the Claimants not the Defendants, and the Claimants therefore took a deliberate decision to exchange knowing that the planning information they had was incomplete.

Tips for sellers

When negotiating contracts for the sale of property, sellers should seek legal advice on any clause attempting to exclude liability, so that careful wording can be included to ensure that the clause will be enforceable.

Needless to say, sellers should still refrain from making deliberate misrepresentations.

Tips for purchasers

When negotiating contracts, if the seller is insisting upon a non-reliance clause, purchasers should seek legal advice on its effect, so as to ensure that it is clear which representations from the seller they can safely rely upon.

It would be useful to have an exception for written representations, similar to the one discussed above. Purchasers can then ensure that any material representations on particularly important points are formally recorded in writing.

In more general terms, this case highlights the importance of undertaking a careful and thorough due diligence process and obtaining copies of approved plans before exchange.