High Court finds entire agreement clause did not exclude liability for misrepresentation

The High Court has held that an entire agreement clause in a commercial contract did not exclude liability for misrepresentation under section 2(1) of the Misrepresentation Act 1967: Al-Hawasi v Nottingham Forest Football Club [2018] EWHC 2884 (Ch). The court overturned the master’s decision to the contrary, considered here.

The decision re-emphasises the generally accepted position that clear words are needed to exclude liability for misrepresentation. In general, the effect of an entire agreement statement (of itself) will be to avoid representations becoming contractual terms, rather than excluding liability for misrepresentation. Where a party wishes to avoid liability for misrepresentation, more will be needed, such as non-reliance wording or an express exclusion of liability.

Background

The background is summarised in our post on the master’s decision, linked above. In brief summary, the Buyer of the shares in Nottingham Forest Football Club Limited brought a claim against the Seller for misrepresentation, based on a spreadsheet which had been provided to the Buyer as part of the due diligence process and which it alleged had understated the Club’s liabilities.

The Seller applied to strike out the misrepresentation claim and/or obtain summary judgment on the basis of an entire agreement clause which stated:

“This agreement … constitutes the entire agreement between the parties and supersedes and extinguishes all previous discussions, correspondence, negotiations, drafts, agreements, promises, assurances, warranties, representations and understandings between them, whether written or oral, relating to its subject matter.”

The agreement also contained a number of indemnity provisions, including against losses arising out of the Club’s liabilities being in excess of (roughly) the amount stated in the spreadsheet.

Master Bowles granted the Seller’s application, finding that the misrepresentation claim was expressly excluded by the entire agreement clause. The Buyer appealed.

Decision

The High Court judge (HHJ David Cooke) allowed the appeal, disagreeing with the master’s construction of the entire agreement clause.

The judge said that the “major plank” of the master’s reasoning was the contractual context, in which the parties had made elaborate provision for specific claims that might be brought, including under the indemnities referred to above. From this the master had inferred an intention that claims in misrepresentation should not be brought outside these specific provisions, and therefore the entire agreement clause should be interpreted as excluding such claims.

The judge agreed that, in principle, the court is entitled to have regard to all the provisions of an agreement in construing any of them. However, he did not accept that contractual terms providing for one type of claim imply that all other types of claim are to be excluded. While it may be sensible for parties to ensure that elaborately negotiated provisions about how claims may be pursued cannot be evaded by framing what is essentially the same claim in some other way, that did not mean the court could improve the bargain the parties had actually made by writing in provisions that the agreement did not contain. Further, in the present case, the Seller’s construction would exclude claims for misrepresentation whether or not they related to matters which duplicated the claims that were expressly provided for. While parties might agree such a term, that could not be inferred simply from the fact that they had made express provision for particular claims.

The judge referred to the master’s view that the use of the term “representations” in this case contrasted with that in AXA Sun Life Services Plc v Campbell Martin Ltd [2012] Bus LR 203, where the court found that a similar clause was not effective to exclude misrepresentations. In the present case, the master had said, the term was used alongside words such as “correspondence”, “negotiations” and “assurances” which could include factual matters asserted in the course of negotiations, whereas in AXA all of the words were “of an obviously contractual nature”.

The judge did not agree with that view, commenting that all of the additional terms referred to in the clause in the present case (correspondence, negotiations and assurances) were matters that might, in the absence of an entire agreement clause, give rise to a collateral agreement or collateral warranty. While they could also give rise to claims in misrepresentation, the judge said:

“since what must be shown is clear wording establishing an intention to go beyond defining the scope of the contractual agreement and exclude other claims, the mere possibility that the words used might extend to matters that could found such other claims is not sufficient”.

Leave a Comment

Filed under Contract, Tort

Leave a Reply

Your email address will not be published. Required fields are marked *