When does an entire agreement clause exclude liability for misrepresentation?

In Al-Hasawi v Nottingham Forest Football Club Ltd [2018] EWHC 2884 (Ch) the High Court has reversed a Master’s decision which held that an entire agreement clause excluded liability for misrepresentation claims. The High Court held that the entire agreement clause was not effective in excluding misrepresentation claims and the parties had not separately agreed any such exclusion.

The Claimant/Buyer purchased Nottingham Forest football club from the Defendant/Seller under a Share Purchase Agreement (SPA). The Buyer alleged that during the due diligence process the Seller had represented that the financial liabilities of the club were lower than the actual liabilities. The Buyer relied on a spreadsheet uploaded to a dataroom purporting to set out the liabilities. The Buyer issued proceedings against the Seller, seeking amongst other remedies, damages for statutory misrepresentation (pursuant to s. 2(1) Misrepresentation Act 1967).

The key issue was whether the entire agreement clause in the SPA excluded claims for misrepresentation. It provided:

“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 Buyer argued that the drafting of the entire agreement clause was not broad enough to exclude misrepresentation claims. It contended that it was only intended to preclude reliance on representations which otherwise could be alleged to be terms of the contract. The Buyer also argued that a “cumulative remedies” clause had the effect of preserving claims for misrepresentation. The clause provided: “[e]xcept as expressly provided in [the SPA], the rights and remedies provided under the agreement are ‘in addition to and not exclusive of any rights or remedies provided by law’”.

The Seller argued that the entire agreement clause should be construed against the contractual indemnity claims scheme in the SPA. It contended that, in this context, it was clear that the entire agreement clause was intended to exclude liability for misrepresentation. In particular, the Seller relied on a clause conferring a right on the Buyer to claim indemnity from the Seller relating to losses suffered “arising out of or in connection with” the amount of the club’s financial liabilities. It also relied on the fact that the SPA contained a detailed procedure for making contractual indemnity claims e.g. including time limits and notification requirements.

The Master’s approach was based on the Court of Appeal’s decision in Axa Sun Life Systems v Campbell Martin. The Master identified two “themes” arising from this decision

• An exclusion of liability for misrepresentation must be clearly stated.
• This is conventionally achieved by well established “formulas”, such as clauses reciting that no misrepresentations have been made/ relied upon, or an express exclusion of liability for misrepresentation. In the absence of such formulations, an entire agreement clause (particularly one “where the word ‘representations’ takes its place alongside words expressive of contractual obligation”) will not normally by itself exclude liability for misrepresentation. The courts’ expectation is that any exclusion will be “separately and clearly provided”.

The Master concluded that misrepresentation claims were “expressly excluded” by the entire agreement clause. The Master appeared to rely principally on two points

• Contractual provisions excluding liability for misrepresentation do not have a fixed form requirement. In this case, the existence of the contractual indemnities demonstrated that the parties “core contractual intention” was to preclude claims relating to the subject matter of the SPA other than via the contractual indemnity scheme.
• Textual distinctions between the wording of the entire agreement clause in Axa and in the SPA relevant to the present case. The Master concluded that the language in the SPA was “deliberately wide” so as to evidence an intention by the parties to exclude claims other than under the SPA.

The High Court reversed the Master’s decision, holding that misrepresentation claims were not excluded. In short, the court concluded that

• The existence of the contractual indemnities did not amount to an agreement to exclude misrepresentation claims. The court expressed caution about “improving the bargain the parties had actually made by inserting provisions that would make commercial sense but were not actually contained in the written agreement they had made.”
• The differences between the wording of the entire agreement clause in Axa and in the SPA did not amount to clear wording establishing an intention to exclude other claims.

This decision is a reminder that exclusions of liability for common law claims in a contract must be clearly and expressly stated. In relation to misrepresentation specifically, this may be through the established formulations (i.e. a non-reliance clause or express exclusion language).

Each case will turn on the words used in the contract, although this decision suggests that, in general, the courts will not treat an entire agreement clause and/or contractual indemnity provisions as themselves establishing intention to exclude common law claims, in the absence of express exclusion language.