Limitations on Limitations of Liability

Any transaction, no matter how much the parties may believe they catered for all eventualities, carries a degree of risk of liability for all parties involved. Where trustees are party to a transaction (whether a property transfer or a lease), they will usually seek to limit their liability to ensure that they are not personally liable. However, a recent case has highlighted that clauses limiting trustees’ liability must be carefully drafted to cover the whole transaction.

A limitation of liability clause in a property contract or deed will usually state that the trustees are limiting their liability to the value of the assets held in the relevant trust at any particular time. If such a clause is not specifically inserted, a trustee may remain personally liable even after they are no longer a trustee.

In the case of First Tower Trustees Ltd v CDS (Superstores International) Ltd [2017] EWHC B6, the scope of a limitation of liability clause was considered by the Court.  Although the core subject of the case was whether there had been misrepresentation by the Landlord in failing to disclose asbestos issues in its replies to pre-contract enquiries, as the Landlord was holding the property on trust, it also sought to rely on the limitation of liability clause in the lease to limit its liability to the value of the assets in the trust.  The wording used in the lease by the Landlord was that the Landlord was contacting “in their capacity of the Barnsley Unit Trust and not otherwise”.

The Court held that although this limitation of liability clause would protect the trustees from contractual liability under the lease, the wording of the clause did not purport to limit the trustees’ liability for pre-contract misrepresentation.

The case therefore underlines the need for a limitation of liability clause to be drafted wide enough in scope to incorporate pre-contractual liability, failing which trustees would remain liable for any pre-contract (and non-contractual) claims such as misrepresentation.

If you are a trustee and would like further information or advice on the scope of your limitation of liability clauses used in property transactions, please contact either Adam Bromley or Mohassan Mehmood in the Commercial Property team at Forbes.

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