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Court confirms that an express waiver for misrepresentation is still required

06.02.2019 Energy & Infrastructure

Chris Kidd

Chris Kidd Head of Shipbuilding and Offshore Construction, Partner

A recent appeal judgment has confirmed that an Entire Agreement clause does not exclude claims for misrepresentation without clear words which do so. The case, Al-Hasawi v Nottingham Forest Football Club Ltd and others [2018] EWHC 2884, overturned the first instance decision, which we discussed in our October 2018 Bulletin.

The case concerned an Entire Agreement clause in a share purchase agreement which stated:

“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.”

First instance decision

In the initial decision, NFFC Group Holdings (the Seller) sought summary judgment dismissing the claim by NF Football Investments (the Buyer) for misrepresentation on the basis of the Entire Agreement clause. According to the contract, the Buyer had the right to pursue a misrepresentation claim against the Seller unless it was expressly excluded by the Entire Agreement clause.

The Master presiding over the application determined that the Entire Agreement clause in the contract excluded the right to claim for misrepresentation because the reference to “representations” was meant in “its more usual meaning”. Essentially his ruling was that the exclusion of representations in the context should be interpreted widely and therefore included misrepresentation. In reaching his decision, he distinguished the Court of Appeal judgment in Axa Sun Life Services Plc v Campbell Martin Ltd [2012] Bus LR 203 on the basis that the clause contained some words which did not have “the flavour of contract”. In Axa, Rix LJ concluded that the Entire Agreement clause before him did not exclude liability for misrepresentation. He reiterated the principle that exclusion for misrepresentation has to be clearly stated and considered how the word “representations” in the clause was among words of contractual import. He therefore found that the Entire Agreement clause was concerned with matters of agreement rather than pre-contractual statements, even if those were relied on to form the agreement.

As a result, the Seller successfully obtained summary judgment and the Buyer appealed. 

Appeal decision

The appeal judge disagreed with the Master, instead taking the view that the Axa reasoning did apply in this case. He did not agree that the question was one of whether “representations” was meant in its usual meaning; the point in Axa was that it was used in a contractual context and therefore should not be interpreted to exclude pre-contractual representations. He also did not agree that the surrounding words in the clause were non-contractual in a way which would indicate that “representations” should be interpreted widely. The judge’s view was that the terms the Master mentioned, such as “correspondence, negotiations and assurances”, could be relied on to found contractual claims even if they were not necessarily contractual in nature.  The reference to “representations” should therefore be interpreted more narrowly in the same way as Axa. The judge further confirmed that the Seller had to show clear wording excluding claims such as for misrepresentation; it was not enough for there to be a “mere possibility” that the words used might extend to such claims.

In overturning the previous decision, the judge accepted that the Master’s approach to construction had been correct in principle but considered that he had erred in his interpretation of the language. The contractual framework provided an indemnity scheme for certain claims and the Master had incorrectly inferred that meant other claims were intended to be excluded. The Buyer’s misrepresentation claim was framed in a way which meant it avoided the provisions and limitations imposed by the indemnity scheme but that was not a reason for the court to go beyond the proper bounds of construction – if the parties wish to avoid this sort of outcome they need to ensure it is achieved with proper drafting.

Comment

This judgment is a reminder that the court will not make good a bad bargain. If you intend to exclude liability for misrepresentation you need to use very clear words, even if you believe such a claim would be governed by other provisions in the contract. It is always important to ensure the contract works as a whole in the way you intend.

Article authors:

Chris Kidd