A recent decision from the Chancery court offers some helpful guidance on the interaction between entire agreement clauses and claims for misrepresentation. Many practitioners may be under the impression that an entire agreement clause has the effect of defeating a claim in misrepresentation. However, this case shows that is not necessarily the case.
If parties wish to exclude the right to claim for misrepresentation, clear language to that effect will be required. While Al-Hasawi v Nottingham Forest Football Club Ltd [2018] EWHC 2884 is not a change to the law, it is a helpful reminder of how these clauses are interpreted.
Entire agreement clauses
Entire agreement clauses are often “boilerplate” terms, included in legal agreements as a matter of course. The purpose of the clause is, where an agreement between parties is reduced to writing, to restrict the terms of that agreement to those written terms, rather than also including as terms other matters the parties discussed in the course of negotiations.
It will usually be helpful to include such a clause, to ensure that the parties are clear on the terms of the agreement between them. To the extent an aspect of pre-contractual negotiation is important, it should be included in the written agreement.
But what happens in circumstances of misrepresentation? That is where Party A is induced to enter into the contract by Party B on the basis of a representation, which is not incorporated as an express provision of the agreement, and which turns out to be false. Does an entire agreement clause, which seeks to restrict the terms of agreement to just those written in the contract and not pre-contractual discussions, defeat such a claim?
Al-Hasawi v Nottingham Forest Football Club Ltd
That was the question that faced the court in Al-Hasawi. The case involves the sale of the share capital of Nottingham Forest Football Club. The dispute related to the level of debt of the football club. The buyer of the club sought to rely on representations made about the level of debt during pre-contractual negotiations to found a misrepresentation claim. The buyer had understood the level of debt to be c. £6.5 million from the contents of a data room, available during the negotiation period, but in fact the debts were in excess of £10 million. This judgment was an appeal against a decision given by Master Bowles in June 2018, that the entire agreement clause was effective to exclude the representation.
The entire agreement provision in the case 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.”
This is a fairly typical example of the wording of entire agreement clauses, which are commonly found in the majority of commercial contracts, including construction contracts.
Construction projects are also potentially rife ground for misrepresentation claims. Take for example the situation where an employer provides a report on ground conditions by a third party, on which basis the contractor enters into the building contract, but that report turns out to paint an incomplete picture.
A matter of interpretation
It is a question of interpretation of the relevant clause as to whether the clause has the effect of excluding a party’s right to a remedy afforded by law, such as via the Misrepresentation Act 1967.
At first instance, the court found that the clause in question did defeat an action in misrepresentation. The respondent party appealed. Upholding the appeal, HHJ David Cooke held that the clause did not have the effect of defeating an action in misrepresentation.
His decision relied in large part on the judgment of Rix LJ in AXA Sun Life Services Plc v Campbell Martin Ltd [2011] EWCA Civ 133, which considered a similar question on a similarly worded clause. In his judgment, HHJ David Cooke warned that:
“…the court would have to be careful to ensure that it was not going beyond the proper bounds of construction and 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.”
That approach is fairly typical of the current approach of the courts when it comes to how contractual terms will be interpreted.
In Axa, Rix LJ considered the word “representations”, finding that the clauses referred to representations of a contractual nature, that is, those that might equate to a contractual term, or a collateral agreement or warranty. In this context, representations did not mean pre-contractual statements that would be capable of a claim for misrepresentation.
The term “supersede” was also considered, which term had been considered by the court in BSkyb Ltd and another v HP Enterprise Services UK Ltd and another [2010] EWHC 86 (TCC). In that case, Ramsey J stated that the terms of the clause:
“…do not, in my judgment, amount to an agreement that representations are withdrawn, overridden or of no legal effect so far as any liability for misrepresentation may be concerned. … If it had intended to withdraw representations for all purposes then the language would, in my judgment, have had to go further.”
These cases were all determined with respect to the language of the particular clause and contract. That said, one principle to draw from these cases is that if parties wish to exclude a right generally afforded to a party by operation of law, clear language will be required. There will often be restrictions on what rights parties can exclude. But the court will not infer such a term.
Clear language having the effect of excluding a claim in misrepresentation might include terms stating that:
- No representations have been made.
- No reliance has been placed on any representations.
- Liability for misrepresentation is expressly excluded.
Takeaway points for practitioners
There are several points to consider when drafting or reviewing entire agreement clauses.
Firstly, if you have entered into an agreement in reliance on comments made by your counterparty, reflect these in the express terms of the agreement. It is often difficult to prove that one relied on a certain discussion when entering into the agreement. If something is important enough to induce parties to enter into the contract, best practice would be to record it in the express terms of the agreement.
Secondly, if the parties intend to exclude remedies for misrepresentation (or another right that the law affords a party), clear language to that effect is required. Often it will require a further term to the entire agreement clause, such as a statement of non-reliance on any representations. It is beyond the scope of this blog post, but parties should also consider the UCTA reasonableness test, and the related consumer legislation.
Finally, do not assume that just because an agreement contains an entire agreement clause, everything that was discussed between the parties during the negotiation phase can be discarded as irrelevant. Although entire agreement clauses are very useful in (generally) restricting the terms of the contract to those written in the agreement, these provisions don’t necessarily defeat all other claims that relate to pre-contractual discussions.
