The High Court has recently reversed a master’s first instance decision, which had held that an entire agreement clause in a share sale agreement was effective to prevent a buyer from bringing a claim for misrepresentation (Al-Hasawi v Nottingham Forest Football Club Ltd (2018)). This decision is relevant to all types of commercial contract, including those for the sale or purchase of property, and affirms the Court of Appeal’s decision in the 2012 case of AXA Sun Life Services Plc v Cambell Martin Limited.
NFFC Group Holdings Limited (the Seller) sold the shares in Nottingham Forest Football Club to NF Football Investments Limited (the Buyer). Prior to the sale the Seller had told the Buyer that the liabilities of the Club were in the region of £6.6 million. However, it transpired that the liabilities were in fact in excess of £10 million. The Buyer brought a claim against the Seller for negligent misrepresentation. The Seller argued that the entire agreement clause in the contract prevented the Buyer from doing so.
The clause read as follows: “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.”
Whilst it is common to find an entire agreement clause in a contract, this clause is drafted particularly widely. However, the Buyer argued that the clause was insufficiently wide to exclude a claim for statutory misrepresentation and that the clause applied only to contractual representations.
A negligent misrepresentation is a statement which is made with no reason to believe it to be true. Where a negligent misrepresentation has been made, the person who the misrepresentation was made to is ordinarily entitled to seek rescission of the contract and/or damages, in addition to damages for breach of contract.
It is possible to exclude liability for misrepresentations. However, in the AXA case it was held that clear words are required to do so. Whilst no particular form of wording was suggested, the court did provide guidelines:
- Any exclusion of liability for misrepresentation must be clearly stated.
- This can be done by way of an agreement that no representations have been made; that there has been no reliance on any representations; or that liability for misrepresentation is expressly excluded.
- If the clause does not adopt one of these formulations and the word “representations” simply appears alongside other words expressing contractual obligations, an entire agreement clause will not be effective to absolve a party from liability for a non-contractual misrepresentation.
At first instance, the Seller was successful in striking out the Buyer’s claim. The master found that the parties had intended to exclude all misrepresentation claims and that the entire agreement clause was effective in excluding matters of a non-contractual nature, including representations. He decided that, given the other exclusions listed (eg discussions and negotiations), there was no reason to limit the word “representation” to contractual representations only – it could simply be given its usual meaning. It was also relevant that the contract contained a specific indemnity in respect of all liability exceeding £6.6 million: the parties had taken steps to ensure that any misrepresentation claims were to be dealt with within the terms of the contract.
However, on appeal the High Court reversed this decision. The court found that the master was wrong to have distinguished this case from AXA. The word “representation” was surrounded by terms that could refer to matters used to create a collateral agreement or warranty and should therefore be treated as relating to contractual representations only. To exclude a misrepresentation claim there must be “clear wording establishing an intention to go beyond defining the scope of the contractual agreement and exclude other claims”. The contract in this case did not contain sufficiently clear wording. Furthermore, it was not relevant that the parties had included an indemnity in respect of any losses caused by the representation: interpreting the entire agreement clause as excluding all misrepresentations would leave the parties without remedies for any losses not covered by the indemnities.
This decision is in line with the decision in AXA that very clear words are needed to exclude misrepresentation claims. While the court will always look at the facts of the particular case and the contract as a whole so as to understand the parties’ intentions, an entire agreement clause stating that the terms of the contract are to be found in that document only will not be enough.
When drafting a contract with the intention of excluding liability for misrepresentation it is essential that the guidelines in the AXA case are followed.