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Clause in standard conditions of sale fails to satisfy test of reasonableness.

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Cleaver & Others v Schyde Investments Limited1 concerned a contract for the sale of land; following completion of the transaction the purchaser intended to seek planning permission to construct a residential development. Commercial Property Standard Enquires were raised by the purchaser and duly responded to by the seller. At the time of responding the seller provided truthful answers to the enquiries, however subsequently facts arose that made the answers wrong. Once the transaction had been completed the purchaser discovered the information that he had been provided with was incorrect and sought to have the contract rescinded on the grounds of misrepresentation. The contract incorporated the Standard Conditions of Sale 4th edn., which excluded (via clause 7.1.3) errors or omissions except in the case of fraud or recklessness or where the property differed substantially in quantity, quality or tenure from what the purchaser had been led to expect. At first instance the Court held that the condition did not satisfy the test of reasonableness under UTCA and the purchaser was entitled to rescind. The seller was subsequently granted permission to appeal the decision to the Court of Appeal. The Court of Appeal dismissed the appeal and upheld the decision at first instance. It was recognised that there was nothing 'self-evidently offensive', in terms of reasonableness and fairness, in a contractual term which restricts a purchaser's right to rescind the contract in the event of the vendor's misrepresentation to cases of fraud or recklessness. This it was thought would be a perfectly rational and commercially justifiable apportionment of risk in the interests of certainty and the avoidance of litigation. However, the question to be answered by the appeal was whether the Judge at first instance was entitled to come to the conclusion that he did, not whether the Court of Appeal would have come to the same conclusion. It would require some exceptional feature for a Court to conclude that a standard condition with a long term history failed to satisfy the test of reasonableness, but it was held that the Judge was entitled to have regard to the particular circumstances of the case and also to consider that the seller had failed to demonstrate that the standard clause was fair and reasonable in this case. The speeches given in the decision of the Court of Appeal clearly underline the fact that while it can be commercially acceptable to limit or exclude liability for innocent misrepresentation, there are occasions when the court may decide that in the circumstances it is not reasonable to do so. This case provides a very limited exception to the general principle that clauses in industry standard conditions will usually be upheld as reasonable by the Courts, and should probably be viewed as a one off; but, it is worth keeping in mind that given the right circumstances such an approach should not be taken for granted. • For additional information please contact: Edward Worthy of Gepp & Sons. The above is not legal advice; it is intended to provide information of general interest about current legal issues.