Beware of reliance on ‘entire agreement’ clauses in an agreement!December 20, 2018
In the recent case of Fawaz Al-Hasawi v Nottingham Forest Football Club and Others (2018) EWHC 2884 (Ch) the High Court held that the entire agreement clause was not effective in excluding misrepresentation claims as the parties had not separately agreed to any such exclusion. This raises alarm bells for those who rely on such clauses and consider contract law to be king.
An entire agreement clause, or ‘boilerplate’ term, are often used in contractual documents to confirm that the document in question captures the entire agreement between the parties. It is a clause used to prevent parties from later seeking to rely on promises, understandings or comments made during negotiations outside of the agreed contract.
Nottingham Forest Football Club (“Club”) was sold by the former owner, Fawaz Al-Hasawi (“Seller”) for a nominal amount of £1. The share purchase agreement (“SPA”) governing the sale contained an entire agreement clause. This clause stated that the signed agreement between the parties superseded all previous discussions, correspondence, negotiations, drafts and agreements. The Club alleged that Mr Fawaz Al-Hasawi had misrepresented the financial liabilities of the Club, under-stating the liability by roughly £3 million. The Club sought damages for statutory misrepresentation under s.2(1) of the Misrepresentation Act 1967. The Seller argued that the entire agreement clause in the contract prevented the Club from bringing an alternative claim for misrepresentation.
The Judge held that the entire agreement clause did not expressly exclude other claims. He noted that clear words are needed to exclude misrepresentation claims and an entire agreement statement that sets out the scope of the agreement is not sufficient. Instead, 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 existence of contractual indemnities did not amount to an agreement to exclude misrepresentation claims. The Court held that although it would have made commercial sense to exclude a claim in misrepresentation for the indemnified loss, this was not reflected in the agreement and it was not for the court to intervene. In addition, if the court was to interpret the entire agreement clause as having the effect of excluding all misrepresentation claims, this would leave the parties without remedies for losses that the indemnities did not cover.
This decision is a reminder that clear and express wording must be used by the parties if they wish to exclude liability for misrepresentation claims in their agreed contract. It is useful to note that interpretation of the wording used will be determined on a case by case basis. This decision simply emphasises that an entire agreement statement specifying that only the terms within the written contract will be binding, will not necessarily have this effect in the absence of express wording.
This article has been produced for general information purposes and further advice should be sought from a professional advisor. Please contact our Corporate Team at Cleaver Fulton Rankin for further advice or information.