The High Court has held that an entire agreement clause in a share sale agreement prevented the buyer from bringing a claim for misrepresentation against the seller.

What happened?

NF Football Investments Ltd v NFFC Group Holdings Ltd concerns the 2017 takeover of Nottingham Forest Football Club (the “Club”).

In April 2017, a company ultimately controlled by Mr Evangelos Marinakis (the “Buyer”) agreed to buy all of the shares in the Club from its previous owner, a company ultimately controlled by Mr Fawaz Al-Hasawi (the “Seller”).

As part of the due diligence exercise on the sale, the Seller provided the Buyer with a spreadsheet setting out the amount of the Club’s liabilities.

Following the sale, the Buyer alleged that the spreadsheet understated the Club’s liabilities by around £4 million. It claimed damages in misrepresentation, arguing that it had relied on the inaccurate figures in the spreadsheet when deciding whether to buy the Club.

In response, the Seller pointed to an entire agreement clause in the sale agreement, which read:

“This agreement (together with the documents referred to in it) 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 Seller also noted that the sale agreement contained indemnities in favour of the Buyer in relation to specific matters, including one clause under which it had agreed to indemnify the Buyer against any losses arising if the Club's liabilities were more than the amount set out in the spreadsheet.

The Seller argued that the combination of the entire agreement clause and these indemnities showed that the parties had agreed on specific remedies for potential misrepresentations, rather than a general claim at law. It said the court should therefore interpret the entire agreement clause as excluding a general right to claim for misrepresentation.

What did the court say?

Perhaps surprisingly, the court agreed. It said the entire agreement clause did prevent the Buyer from bringing a claim in misrepresentation.

Entire agreement clauses do have some effect. They will normally prevent contract parties from claiming they are bound by arrangements sitting outside the written contract (such as in an oral agreement or a collateral contract) at the time they enter into it.

However, the courts have historically refused to find that an entire agreement clause will exclude liability for misrepresentation, unless the clause is worded clearly to that effect. A “standard”, relatively short entire agreement clause is unlikely to achieve this.

The master in this case acknowledged this, but he also noted that it is not possible to say that a clause will have a particular effect merely because it takes a particular form. Rather, “the effect and meaning of a particular clause in a contract must always be a matter of the construction of the particular clause set in its particular context”.

When looking at the entire agreement clause alongside the specific indemnities in the sale agreement, he felt the parties had intended to exclude liability for misrepresentation. This was despite the fact that the sale agreement also said that the rights and remedies in it were “in addition to and not exclusive of any rights or remedies provided by law”.

Practical implications

This was a judgment on a strike-out application. There was no full trial and so it is important not to place too much emphasis on the decision. However, it is nonetheless important, not just in the context of a share sale, but for commercial contracts generally.

First and foremost, the case makes it clear that it is not possible to lay down generalised rules about contractual clauses. It can be very tempting to assume that certain words have special meanings, or that formulating a contract term in a particular way will yield a particular effect.

Rather, courts try to understand the intention of the contract parties. Because of this, similar language could be interpreted in a certain way in one case, but in an entirely different way in another.

This doesn’t apply solely to entire agreement clauses. As noted above, the sale agreement in this case also contained a “reservation of rights” clause, stating that rights and remedies provided by law were preserved. However, the master found that this did not preserve the right to claim in misrepresentation.

The case highlights the following points to bear in mind:

  • If looking to exclude liability for misrepresentation, it is still best to refer specifically to actions for misrepresentation in the contract. This could take the form of an explicit exclusion of liability, but a “non-reliance statement” should also work. It will not always work simply to insert the word “representations” into an entire agreement clause.
  • If there is no express exclusion of misrepresentation, do not assume that a party will be entitled to bring misrepresentation claims. Consider carefully the interaction of any specific remedies in the contract with general boilerplate, such as an entire agreement clause.
  • Make sure that your entire agreement clause is worded broadly to capture as much as possible. In this case, the fact that the clause referred to “correspondence”, “negotiations” and “assurances”, which are non-contractual in nature, persuaded the court that the parties intended to exclude non-contractual remedies, such as claims in misrepresentation.
  • Do not rely on a reservation of rights clause. This kind of clause will only preserve the parties’ rights and remedies in law to the extent they haven’t been cut away by the parties’ contract. And, as shown by the recent decision in Phones 4U Limited (in administration) v EE Limited, attempting to reserve rights at law may not help if the party fails to exercise them in the first place.