Nottingham Forest FC Entire Agreement clause
The High Court recently found that the entire agreement clause in a share purchase agreement relating to the sale and purchase of Nottingham Forest Football Club was effective to exclude claims brought by the buyer, NF Football Investments Limited (a company headed by Evangelos Marinakis and Sokratis Kominakis), against the sellers, NFFC Group Holdings Limited and Fawaz Al-Hasawi, for misrepresentation.
Entire Agreement Clauses
The “entire agreement” clause is one of the most important boilerplate clauses found in share purchase agreements. The courts have frequently analysed such clauses and have been the subject of much litigation over the years. Entire agreement clauses are intended to prevent the parties to a written agreement from bringing a claim around statements made in the negotiation stage which are not expressly included in the final agreement. The impact of such a clause on excluding claims for misrepresentation is much less certain. The principal view of the courts has traditionally been that entire agreement clauses do not affect the status of misrepresentation claims unless clear words are used to exclude or limit liability for misrepresentation.
Nottingham Forest FC Case
With this background, the decision of the High Court in the Nottingham Forest FC case is slightly surprising. Following the sale and purchase of the club, the buyer alleged that a document provided to it by the seller during the negotiations leading up to the purchase understated the liabilities of the club by more than £3.5m and consequently sought damages for misrepresentation.
However, in the case, Master Bowles found that the parties had in fact intended to exclude misrepresentation claims because the seller was required to indemnify the buyer for losses (including those arising from the seller’s misrepresentation of the club’s liabilities and the parties had “set up contractual procedures to deal with claims likely to arise under and in respect of the [share purchase] agreement within the four walls of the agreement”. Therefore claims arising other than via the contractual structure of the share purchase agreement (including misrepresentation claims) were, by implication, excluded.
Furthermore, the scope of matters excluded by the entire agreement clause was very wide and included matters of a potentially contractual nature (e.g. drafts, promises and warranties) and those of a less contractual nature (e.g. negotiations, assurances and representations). Accordingly, the buyer’s claim for misrepresentation failed and was struck out in a summary judgment.
The main point to note about this decision is that the court’s determination of issues around contractual interpretation will invariably depend upon the language used and its context. Accordingly, the case does not cement a new method to the interpretation of entire agreement clauses. Parties (particularly the seller under a share purchase agreement) should not seek to rely on an ordinary entire agreement clause to carve out potential claims for misrepresentation. Instead, parties should utilise ‘no reliance’ clauses in such agreements. No reliance clauses are much better recognised as preventing a counterparty from claiming reliance on a statement when entering into an agreement and therefore barring any potential claims for misrepresentation.
For more information on 'entire agreement' clauses, please contact Sean Halliwell, or you can give us a call on 0345 070 6000.