Increasingly, parties are looking for ways to minimise their liability for statements made during contractual negotiations. In this article we discuss the various hurdles that parties potentially face when making a misrepresentation claim and whether the clauses that attempt to exclude liability for misrepresentation actually work.
Attempts to limit liability
The two most common clauses used to limit liability for misrepresentation are:-
(a) An entire agreement clause – this clause makes it clear that the written contract terms represent the entire agreement between the parties, and that no other statements form part of the contract.
(b) A non-reliance clause – in this clause the parties agree that they did not enter into the contract due to reliance on any representations made by the other party which were not included in the written terms of the contract.
Whilst it is always sensible to include these clauses within a contract, they do not guarantee that liability for misrepresentation has been excluded.
Regulation on limitations of liability
There are a number of statutory measures that have been introduced to regulate clauses that seek to exclude liability.
Consumer contracts are governed by the Consumer Rights Act 2015 (“CRA 2015”). The CRA 2015 imposes a requirement that contract terms have to be fair. The overarching principle in terms of fairness is that a term is more likely to be unfair if it ’causes a significant imbalance in the parties’ rights and obligations under the contract, to the detriment of the consumer.’ This may assist consumers in arguing that a non-reliance or entire agreement clause is unfair.
In contrast, the Misrepresentation Act 1967 (“MA 1967”) applies to all contracts. The MA 1967 provides that any term seeking to exclude or restrict liability in respect of misrepresentation is subject to a test of reasonableness.
The court applies the test of reasonableness taking into account various factors, including whether both parties had legal representation when entering into the contract and the extent to which liability is being excluded. If a contract term is found to be unreasonable, it is effectively ignored and the contract will continue as though the clause was never included in the contract.
In the case of First Tower Trustees Ltd v CDS (Superstores International) Ltd  the Court found that in principle non-reliance statements were capable of excluding liability for misrepresentation. However in that particular case, the Court decided that the clause in question did not satisfy the reasonableness test and was therefore unenforceable.
Minimising the risks of a misrepresentation claim
Whilst non-reliance and entire agreement clauses are a good way to minimise the risks of a misrepresentation claim, the case law shows that they are still open to challenge. The key consideration is the fairness and/or reasonableness of the clause in question. If you are the party hoping to rely upon such a clause, the best thing to do is to make the clause as unambiguous as possible.
Our Commercial Dispute Resolution team, regularly deal with misrepresentation claims and therefore if you are looking to bring (or defend) a misrepresentation claim, please do get in touch by calling 0345 450 5558 or through email at email@example.com.