Limiting liability for misrepresentation: key issues and practical points Page 1 of 4

Limiting liability for misrepresentation:

key issues and practical points
Contractual clauses limiting liability for
misrepresentation have stood up to scrutiny. There
are practical steps parties can take to minimise the
risk of claims for misrepresentation against them.
06 November 2017

Many contracts include clauses which attempt to limit liability for misrepresentation. They are
important as they provide certainty by limiting the parties’ ability to claim on each other outside
the terms of the contract.

Despite this, claimants alleging misrepresentation continue to test the limits of these clauses
often focusing on issues of construction, reasonableness and allegations of fraud. Generally, the
court has found that these clauses stand up to scrutiny but careful drafting is required to make
sure they work as intended.

How do parties contractually protect themselves

from misrepresentation claims?
There are two clauses typically used to limit liability for misrepresentation: “entire agreement”
clauses and “non-reliance” clauses.

Entire agreement clauses attempt to limit what has been agreed to particular contractual
documents. Successful drafting prevents pre-contractual representations from being included in
the contract, unless it can be proved that this was not the parties’ intention.

Non-reliance clauses are more specific and are used to demonstrate a party’s non-reliance on a
pre-contractual representation (estoppel by convention). Alternatively, they can show that the

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parties have agreed that they would act as if they did not rely on a pre-contractual
representation, even if the opposite is true (contractual estoppel).

Construction – what does the clause say?

Claimants alleging misrepresentation may try and limit the impact of entire agreement/non-
reliance clauses. The party relying on the clause (to limit or exclude liability) will have the burden
of proving its effect.

Take for example the following entire agreement clause from the International Swaps and
Derivatives Association master agreement 2002:

“This Agreement constitutes the entire agreement and understanding of the parties with
respect to its subject matter. Each of the parties acknowledges that in entering into this
Agreement it has not relied on any oral or written representation, warranty or other
assurance (except as provided for or referred to in this Agreement) and waives all rights and
remedies which might otherwise be available to it in respect thereof, except that nothing in
this Agreement will limit or exclude any liability of a party for fraud.”
fraud (emphasis added)
(Standard Chartered Bank v Ceylon Petroleum Corporation [2011] EWHC 1785 (Comm) at
[568])

And compare it to the non-reliance clause in the same document:

“The parties are not relying on any communication (written or oral) of the other party as
investment advice or as a recommendation to enter into that Transaction; it being understood
that information and explanations related to the terms and conditions of a Transaction shall not
be considered investment advice or a recommendation to enter into that
Transaction.” (emphasis added) (Property Alliance Group v RBS [2016] EWHC 207 (Ch) at
[207]).

Both clauses say that the parties have not relied on pre-contractual representations. However,
the first was held to prevent a misrepresentation claim based on pre-contractual
representations, except for fraud or in respect of representations made in the Agreement.

In contrast, the second clause only prevented the claimant from relying on a representation as
investment advice or as a recommendation. It would not prevent a claimant from relying on
those representations for other purposes.

A party negotiating clauses which limit liability for misrepresentation needs to be clear on their
limits. First, this is so that they know whether the term is suitable for their needs. Playing devil’s
advocate to test what the clause does and does not include could be useful. Second, knowing
the limits of the clause helps identify where the parties need to be particularly careful in pre-
contract negotiations to reduce the risk that misrepresentations are made.

Reasonableness – is the clause reasonable?

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Claimants could argue that a clause limiting liability is unreasonable and therefore
unenforceable.

The Misrepresentation Act 1967 provides that any contract term excluding or restricting (i)
liability by reason of misrepresentation (pre-contract), or (ii) any remedy by reason of such
misrepresentation, will be ineffective unless it is considered reasonable in accordance with the
Unfair Contract Terms Act 1977.

Entire agreement and non-reliance clauses are not automatically unreasonable. In Thornbridge v
Barclays Bank [2015] EWHC 3430 (QB), the claimant argued that it was tantamount to re-
writing history by including a clause which said pre-contract representations had not been made
where in fact they had been. The court held that the clause set out the basis on which the
parties had contracted and was therefore reasonable. However, the court in Thornbridge noted
that pre-contractual representations which affect a party’s reasonable expectation about the
entire agreement or non-reliance clause are likely to be unreasonable and could be held
ineffective.

Three practical tips: 

1. First, good drafting can limit the amount of a clause that is held ineffective if only part of
it is held unreasonable. Courts are only willing to invalidate those parts which are held to
be unreasonable rather than the clause as a whole. Contracts often state that any part of
a clause held to be invalid should not affect the remainder.
2. Second, parties may find established non-reliance or entire agreement clauses are suitable
for their needs. The Courts will consider how widely used or established a clause is when
determining if it is reasonable. The more bespoke a clause is, and therefore the less
familiar to a party and the Court, the harder it may be to prove that it was reasonable.
3. Third, parties should still be careful about what pre-contract representations they make, in
particular avoiding representations that may affect a party’s reasonable expectation about
the clauses that attempt to limit liability.

How vulnerable are these clauses to challenges

alleging fraud?
Non-reliance or entire agreement clauses cannot prevent liability for fraudulent
misrepresentation. At first sight, it would appear that a claimant could circumvent the obstacles
of entire agreement and non-reliance clauses by alleging fraud. However, there are still three
obstacles for claimants alleging fraud.

First, allegations of fraud require a false representation to have been made knowingly, without
belief in its truth or recklessly as to its truth; this is hard to prove.

Second, O3B Africa Ltd v Interactive Solutions (2017) makes it clear that a party alleging fraud
has to be able to show it has a good argument for each and every element of a fraudulent
misrepresentation claim.

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Finally, lawyers have regulatory obligations which prevent them from supporting their client's
case alleging fraud where the solicitor does not reasonably believe they have sufficient evidence
to show, on the face of it, a case of fraud.

Accordingly, a party trying to prove fraud cannot simply cry fraud; they must be able to show
they have a good argument for each element required for a successful claim of fraudulent
misrepresentation. Equally, a defendant subject to an allegation of fraudulent misrepresentation
should be clear what is required from the claimant.

For more information on reducing the risk of a misrepresentation claim, contact Kari
McCormick or Tom Whittaker.

Key contact

Kari McCormick Partner

+44 (0) 117 902 6620 kari.mccormick@burges-salmon.com

• Head of Financial Services 

• Insurance
• Dispute Resolution

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