A recent High Court decision has reaffirmed that to exclude misrepresentation claims, clear and unequivocal wording is required. So, what is the impact of an entire agreement clause?
A recent case – Al-Hasawi v Nottingham Forest Football Club Ltd – has outlined how important clear, unequivocal wording is in commercial contracts. It involved a share purchase agreement (SPA) for the sale of the entire share capital of Nottingham Forest Football Club, which was heavily in debt; the shares were sold for £1. During negotiations, the seller gave the buyer various documents (by disclosing them into a virtual data room), including a spreadsheet detailing the club’s current liabilities, valued at £6,566,213.
The buyer brought a claim, stating that the information in the spreadsheet was a false representation – the club’s true liabilities were significantly higher, at over £10 million. The buyer argued that it had relied upon the representation made in the spreadsheet, to its detriment.
The seller applied to strike out the misrepresentation claim, arguing that it was excluded by the following entire agreement clause in the SPA:
“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.”
Commercial contracts often include an ‘entire agreement’ clause, confirming that statements or representations (including oral statements) that aren’t included in the contract don’t have any contractual effect. In an earlier case (Inntrepreneur Pub Co v East Crown Ltd), the Judge said the purpose of these clauses is to stop either side ‘threshing the undergrowth and finding in the course of negotiations some chance remark or statement (often long forgotten or difficult to recall or explain) on which to found a claim’.
In Al-Hasawi, the Judge considered the entire agreement clause above, along with other case law, stating that it wasn’t sufficiently clear that the clause was intended to go “beyond the scope of the contractual agreement, and exclude other claims.” If the seller’s argument that the misrepresentation claim was excluded by the entire agreement clause had been accepted, the buyer wouldn’t be able to bring a misrepresentation claim. The Judge determined that the terms of the clause weren’t clear enough to work out whether this had been the intention.
This case is a sharp reminder of both the approach the courts will take when faced with an argument that a misrepresentation claim is excluded by an entire agreement clause in a commercial contract, as well as the need to make sure the wording in commercial contracts leaves no room for doubt.