The law of misrepresentation applies to representations – that is, statements – made before a contract is formed where the representation:
- is false, and
- is relied upon by a party, and
- induces the other party to enter the contract.
When a representation is false, it is known as a misrepresentation.
Non-reliance clauses operate to:
- exclude reliance on precontractual representations altogether, and
- establish that the parties have not relied on any matter other than what appears in the contract itself
Without “reliance” there can be no “inducement” to enter the contract - and therefore no misrepresentation.
Thus, non-reliance clauses attempt to exclude liability for misrepresentation by stating that the parties do not rely on any representation made other than those set out in the contract.
However, parties are not entitled to contract out of liability for fraudulent misrepresentation.
Words in a contract stating that liability for civil fraud is excluded are likely to be void. Where a contract attempts to do so, it will likely be severed from the contract.
Defences in cases of fraudulent misrepresentation usually hinge on claims that:
- it was not an actionable misrepresentation; or
- the suing party didn’t rely on the statement to enter into the contract, ie reliance.
When are they used?
Typically these clauses appear in contracts for the sale of goods or services, where claims about the goods or services may be … exaggerated. The seller may go over the top and say that the performance, qualities or features or the products or services are not what they said they were.
The buyer cannot really know whether goods or services have those qualities until have used them - which means in most cases entering the contract.
A common form of non-reliance clauses looks to exclude reliance on all representations which are not recited in the contract itself. Each and every representation made is excluded.
In that way, the statement is included in the contract is not excluded by the non-reliance clause.
Are they enforceable?
When they done correctly, they usually are, absolutely.
When a clause acknowledges that no representations have been relied on, is an effective exclusion of any liability for misrepresentation.
Clear words are needed to exclude a liability for negligent misrepresentation: BSkyB Ltd v HP Enterprise Services UK Ltd 2010 EWHC 86 (TCC).
When a non-reliance clause is effective, it prevents reliance on the alleged misrepresentation as a contractual estoppel, and prevents a claim based in reliance of the misrepresentation (at paragraph 526).
Example: No-Reliance Clause
- Each party acknowledges that in entering into this Agreement it does not rely on and shall have no remedies in respect of any representation or warranty not set out in this Agreement.
- Each party agrees that it shall have no claim for innocent or negligent misrepresentation or negligent misstatement based on any statement in this agreement.
- Nothing in this agreement shall affect the parties’ liability for fraudulent misrepresentation.
Related: Boilerplate Clauses