Chapter 5 Updates to the Law

Misrepresentation and non-disclosure
Untitled Document

Chapter 5: Misrepresentation

5.1.4 Made to the Claimant

In Taberna Europe CDO II plc v Selskabet AF1 (formerly Roskilde Bank A/S) [2016] EWCA Civ 1262 the Court of Appeal made helpful findings in respect of misrepresentations made on a bank’s website:

    1. The Court will be particularly cautious in the context of electronic documents: ‘In an age when most commercial documents exist primarily in electronic form and can be made available to a wide audience at the touch of a button it is important not to allow inroads to be made too easily into the principles enunciated in cases such as Peek v Gurney and Caparo Industries plc v Dickman [1990] 2 AC 605’;
    2. Placing public documents on a company’s website is unlikely to be sufficient alone to create the degree of proximity required;
    3. For document to be ‘actionable at the suit of the recipient’ there has to be a ‘connection between the maker and the recipient’ that allows the court ‘to be satisfied that the maker was intending the recipient to rely on the document in a particular way’.
    4. On the facts, such intention (encompassing purchase on the secondary market) could be found in the fact that the bank intended that potential investors should have access to and rely on the presentation for the purpose of deciding whether to invest; the bank also encouraged another bank to direct the Claimant to the presentation.

Moreover, the misrepresentation must be made by the other party to the contract for a representee to bring a claim under section 2(1) Misrepresentation Act 1967. The representee cannot claim against a third party whose misrepresentation induced her into a contract, even if the contract confers contractual rights against the third party. Here, the fact that a bank’s misrepresentation induced the claimant to purchase the bank’s loan notes from another party giving the claimant rights of a contractual nature against the bank was not sufficient to allow recovery under s.2(1) MA 1967. The remedial advantages of a section 2(1) claim: the ‘fiction of fraud’

p. 239             5. Contributory negligence

Suggested update:

After ‘Gran Gelato v Richcliff (Group), add-
(confirmed in Taberna Europe CDO II plc v Selskabet AF1 (2016).

At end of that section, add-
In Taberna Europe CDO II plc v Selskabet AF1 (formerly Roskilde Bank A/S) [2016] EWCA Civ 1262 at [52], the Court of Appeal held that the defence is in principle available ‘as section 2(1) of the Misrepresentation Act 1967 creates a form of statutory liability sounding in negligence’. Whether it is equitable to apportion is fact-dependent.

p. 239             7. Exemplary damages for fraud

Add to the end:

The Court of Appeal has now awarded exemplary damages in a fraudulent insurance claims case where the anticipated profit would have exceeded the loss and such damages was awarded notwithstanding the fact that the defendant has already been convicted and imprisoned and that a criminal confiscation order is pending as a result of the same fraud. Axa Insurance UK Plc v Financial Claims Solutions Ltd [2018] EWCA Civ 1330 concerned two fraudulent motor accidents. The first respondents pursued claims on behalf of the drivers and passengers. Throughout the litigation, the first respondent committed the criminal offence of acting as if it were a firm of solicitors authorised to conduct litigation, which it was not. Moreover, its conduct of the proceedings was ‘sophisticated, well-planned and brazen’, e.g. default judgment was entered against Axa although enforcement proceedings were not served on Axa despite the first respondent fraudulently misrepresenting to the Court that enforcement proceedings had been served; special damages were awarded, comprising of car hire and personal injury although the car hire company did not exist, the medical reports were fakes, and that the landlord of the alleged claimants revealed that no one with those names had ever lived at that address.
Axa obtained a stay of enforcement and issued applications to strike out the claims and set aside the default judgment. The judge found in Axa’s favour and awarded compensatory damages of £25,000 but refused to award exemplary damages for the torts of deceit and unlawful means conspiracy. On appeal, the Court of Appeal awarded exemplary damages of £20,000 against each of the three respondents, although the respondents had been variously imprisoned or subject to confiscation orders. Lord Justice Flaux held that:

  1. Exemplary damages remained an ‘exception to the general rule’ and should not be extended beyond the three categories of case identified by Lord Devlin in Rookes v Barnard (see 13.2.1).
  2. Nonetheless, the criterion that the defendant's conduct must have been calculated to make a profit which may well exceed the compensation payable to the claimant was ‘clearly satisfied’ in the current (had the fraud been successful, £85,000 profit would have been made) and similar fraudulent insurance claims.
  3. The judge’s analysis that the profit and the compensation would be identical was erroneous as:
    1. the Court must analyse the position prospectively at the time that the tort is committed when the tortfeasor may or may not ultimately achieve their objective; and
    2. had the fraud been successful and Axa paid the claims, the money would have disappeared and Axa would have been unable to recover the money.
  4. Exemplary damages are not limited to cases where the profit made by the wrongdoer cannot be fully recovered by the victim through compensatory damages [28] or cases of ‘unreachable damages’ [29]; and
  5. The existence of criminal proceedings and, in particular, confiscation proceedings did not affect the award of exemplary damages. Section 3 MA 1967
p. 244 on whether ‘no reliance clauses’ come within section 3
First Tower Trustees Ltd v CDS (Superstores International) Ltd [2018] EWCA Civ 1396

The parties entered into a lease and an agreement for lease of four Bays in a property.  In each case, unknown to the tenant, but known to the landlord or its agents, the Bays were so contaminated with asbestos that they were dangerous to enter.  During negotiations the landlord provided the tenant with information which indicated that there were no problems with asbestos.  In response to the tenant’s pre-contract enquiries for details of any actual, alleged or potential environmental problems (including actual or suspected contamination) relating to the property, the landlord said that it had not been notified of any such breaches or environmental problems relating to the property but that the tenant must satisfy itself on the matter.   In the weeks immediately before entry into the lease the landlord’s agents received a report which indicated that there was some asbestos in the Bays and an email from a specialist firm reporting the existence of a health and safety risk caused by asbestos near to the loading bay – neither were passed on to the tenant.
The issue for the Court of Appeal was whether the landlord had effectively excluded liability in respect of these misrepresentations because the lease contained the following clause:

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 Court of Appeal held:

  1. That this clause fell within the scope of section 3 of the Misrepresentation Act 1967 and, that it failed to pass the reasonableness test.  The conclusion that a no reliance clause of this type falls within the scope of section 3 is one of some commercial significance. 
  1. In relation to the interpretation of section 3, Lewison LJ stated at [51] that section 3 ‘must be interpreted so as to give effect to its evident policy’ which was ‘to prevent contracting parties from escaping from liability for misrepresentation unless it is reasonable for them to do so’; ‘how they seek to avoid that liability is subsidiary’ (see Cremdean Properties v Nash [1977] 2 EGLR 80 and Raiffeisen Zentralbank Osterreich AG v The Royal Bank of Scotland plc [2010] EWHC 1392 (Comm), [2011] 1 Lloyd’s Rep 123).  To conclude otherwise would enable a person responsible for drafting a contract to evade the clutches of the Act and, as Leggatt LJ observed (at [99]), ‘no rational legislator could have intended that the need for a contract term to satisfy a test of reasonableness could be avoided simply by felicity in drafting the contract term.’ 


Thus, a clause that has the effect of exempting liability for misrepresentation falls within section 3 and subject to a reasonableness test, even if it takes the form of a ‘no-reliance’ provision or a clause, which purports to define the ‘basis’ on which the parties have entered into the contract.  So, while a contractual estoppel may be valid as a matter of contract between the parties, it may nevertheless amount to an exclusion of liability for misrepresentation and so be subject to the reasonableness test under section 3. Leggatt LJ explained (at 104]) that while English law attaches importance to the parties’ freedom to agree terms, it does so on the basis that ‘their consent to the terms of the contract has been obtained fairly’; this is not the case where the consent of one party has been induced by the other’s misrepresentation.   Thus, ability to avoid the reach of section 3 by mere drafting devices is very limited.          



p.246 on the application of the reasonableness test to exclusions for misrepresentation
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In applying the test of reasonableness to the no-reliance clause in First Tower Trustees Ltd v CDS (Superstores International) Ltd [2018] EWCA Civ 1396, Lewison LJ:

  1. recognised that whether or not a clause passes the test of reasonableness is an evaluative judgment for the trial judge (see George Mitchell (Chesterhall Ltd v Finney Lock Seeds Ltd [1983] 2 AC 803) and that appellate courts should be slow to intervene in this process.  On the facts, there was no basis on which it could be said that the judge had misdirected himself in law or taken into account irrelevant factors.  
  2. A factor of particular significance is that of pre-contract enquiries in the field of conveyancing.  The problem with the no-reliance clause was that it was too all embracing and so unreasonable so notwithstanding the fact that both parties were substantial commercial concerns who were represented by competent solicitors. 

Pause for reflection

  1. The parties should have excluded from the no-reliance provision statements or representations made in writing by the landlord’s solicitors in response to written inquiries from the tenant’s solicitors. This would have been sufficient to enable another clause in the agreement between the parties to pass the reasonableness test (at least in the opinion of the first instance judge).   The absence of an equivalent provision in clause 5.8 was held to be fatal to the claim that the clause was reasonable and this was
  2. No reliance clauses are also heavily used in finance and investment contracts.  But here they may have a greater chance of passing the reasonableness test given the observation by Lewison LJ (at [67]) that ‘it will always be open to a contracting party seeking to rely on such a clause to establish that it was reasonable; and in cases involving the sale of complex financial products to sophisticated investors it may well be.’