Any business that enters into contracts will be familiar with the comforting wording of the entire agreement clause. The clause aims to prevent parties to the contract from making claims that pre-contractual statements (statements made outside of contract negotiations which do not feature in the final written contract) constitute additional terms or a separate ‘side agreement’.
But can this clause extend to a defence of claims for misrepresentation? The courts have historically found that claims for misrepresentation can be made despite the presence of an entire agreement clause absent an effective "non-reliance" or "non-representation clause". After all, if you had known that the representation in question was false, you wouldn’t have entered into the contract in the first place. This affords comfort to many corporates who enter into agreements for the sale and purchase of a business.
However, the High Court has recently struck out a claim for misrepresentation in NF Football Investments v NFCC Group on the basis that an entire agreement clause within a share purchase agreement for Nottingham Forest Football Club prevents such claims from being made.
The facts
Nottingham Forest FC was sold in a share sale last year. Through the due diligence process of the sale, the sellers provided a spreadsheet of the club’s liabilities. Post-sale, the buyers claimed that the sellers had misrepresented the extent of the club’s liabilities by over £3.5 million. The buyers brought a claim for damages for that misrepresentation.
The result
The claim failed and the High Court found that the share purchase agreement in place had successfully excluded all misrepresentation claims despite it containing no wording on reliance or excluding such liability.
The headline points: construction and context count.
- Construction: the wide drafting of the entire agreement clause stated that the contract superseded any prior “representations”. This interpretation was supported by the context.
- Context: another clause in the agreement dealt with the resolution of disputes regarding liabilities. This clause created an indemnity scheme, whereby the sellers would indemnify the buyers for any losses incurred as a result of liabilities exceeding those provided during the due diligence process.
All things considered, the High Court held that the written contract expressly demonstrated the parties' intention to resolve disputes arising in respect of any liabilities within the indemnity scheme clause.
What does this mean for misrepresentation claims?
This case does not mean that all entire agreement clauses will help dodge all misrepresentation claims. Indeed, it is still an unusual decision given the court’s historic reluctance to construe entire agreement clauses as excluding claims for misrepresentation.
Yet, we are reminded that judges can and will interpret a clause in the context of the whole contract. In this case, context (in particular the existence of specific clause providing remedy for the exact issue which was complained about) was persuasive enough for the court to depart from its usual standpoint.
Misrepresentations (or at least losses arising from an incorrect liabilities statement, which was the basis of the claim) were expressly acknowledged and dealt with elsewhere in the contract. Therefore, the buyers had an alternative route to resolve the dispute arising out of the liabilities. Whether the court would have come to the same conclusion in the absence of this additional contractual mechanism is debatable.
Indeed, it is notable that in First Tower Trustees Ltd v CDS (Superstores International) Ltd, decided just a couple of weeks after NF Football, the Court of Appeal held that a tenant could pursue its landlord for misrepresentations in pre-contract enquiries.
How can Burges Salmon help?
This is a complex area with resolution being highly fact specific. Should you wish to discuss these issues further, please speak to David Hall, Charlotte Whitaker, Sakshi Buttoo or your usual Burges Salmon contact.