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29 January 2019
What is the impact of this?
The High Court has confirmed on appeal from a master's decision that although an entire agreement clause purported to extinguish all previous representations,(1) it did not in fact exclude liability for misrepresentation. That there were contractual indemnities covering effectively the same subject matter did not, without clear language, mean that liability had been excluded.
In the first-instance decision, the buyers of Nottingham Forest Football Club had been prevented from bringing a misrepresentation claim against the sellers (for further details please see "Football club's entire agreement clause performs impressive save against negligent misrepresentation claim"). The buyers claimed losses that they had suffered as a result of the fact that the club's liabilities were at least £3 million greater than the seller had represented to be the case prior to the sale. The master concluded that the entire agreement clause (below) excluded this claim:
This agreement (together with 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 master held that, unlike in the leading case AXA,(2) the word 'representations' here covered matters of both a contractual and a non-contractual nature because it was an item in a list of items expressed in broad terms (such as 'correspondence' and 'negotiations'). In AXA the word 'representation' had been sandwiched between words of an obviously contractual nature such that it was deemed to have a narrow, contractual meaning and thus did not exclude a (non-contractual) misrepresentation claim.
The master was also influenced by the fact that the parties had included detailed indemnities in the agreement, particularly in relation to claims regarding any misstatement of the club's liabilities. The master found that this demonstrated the core intention that the parties should be precluded from making claims outside the contractual procedures in the agreement. The buyers appealed.
The High Court was not persuaded that the inclusion of the indemnities implied that other types of claim relating to the same subject matter (eg, representations made about the club's liabilities) were intended to be excluded. Although it would have been commercially sensible for the parties to have ensured that that was the case (thus preventing the indemnities from being evaded by essentially framing the same claim in another way), the court should not insert provisions that would make commercial sense but are not actually contained in the agreement.
Further, that interpretation would have meant that all misrepresentation claims were excluded, even if they did not relate to the matters covered by the indemnities (which dealt with the club's liabilities but not, for example, its assets). Again, parties might negotiate such terms but that could not be inferred simply from the fact that express provision was made (in the indemnity provisions) for one or more particular claims.
The agreement also included a separate clause which preserved other rights and remedies provided by law except as expressly provided in the agreement. That clause constituted another basis on which to avoid such an inference.
Finally, the court held that the use of the word 'representations' could not be viewed differently from that in AXA simply because in that case it was surrounded by words exclusively of a contractual nature. In AXA, the court had not given 'representations' any non-normal, contractual meaning. It had simply said that it is capable of referring to representations that might have acquired contractual force. Further, some of the other words in the list in the present case (such as 'correspondence' and 'negotiations'), which at first instance had been found to be non-contractual in nature, could be contractual in nature (eg, they could found a claim to a collateral agreement or warranty).
This decision restores clarity and effectively endorses the approach in AXA: that exclusion of liability for misrepresentation must be clearly and expressly stated. AXA established that this can be done by stating that no representations have been made, that there has been no reliance on any representations or by expressly excluding liability for misrepresentations.
In assessing whether an entire agreement clause excludes liability, satisfaction of one of those requirements appears to be the all-important determining factor. If one of the requirements is not satisfied, the court is unlikely to exclude liability, even if the contract drafting suggests an intention by the parties to do so.
For further information on this topic please contact Geraldine Elliott or Ed Holmes at RPC by telephone (+44 20 3060 6000) or email (email@example.com or firstname.lastname@example.org). The RPC website can be accessed at www.rpc.co.uk.
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