In a surprising turn of events, the High Court has recently found that a simple entire agreement clause which didn’t include the usual wording preventing a party relying on statements outside the contract, or excluding liability for such statements, nevertheless prevented a buyer bringing a statutory misrepresentation claim against a seller. In the past the Courts have always rejected attempts to read entire agreement clauses as excluding misrepresentation unless this is clearly stated.
NF Football Investments Ltd and another v. NFCC Group Holdings Ltd and another  EWHC 1346 (CH) related to the purchase of the entire issued share capital of Nottingham Forest Football Club Limited. While there are a number of questions before the Court in relation to the transaction, a recent summary judgement looked at whether the entire agreement clause in the share purchase agreement (SPA) would have the effect of excluding statutory misrepresentation claims. These claims arose from an allegation that a spreadsheet included in the data room for the transaction misrepresented the club’s liabilities by some £3.8m, and the buyer wished to try to recover that amount. The seller’s defence to this claim was that looking at the SPA as a whole, and the entire agreement clause itself, all misrepresentation claims would be excluded. The SPA did include a mechanism pursuant to which the buyer and the club would be indemnified by HFCC Group Holdings Limited to the extent that the club’s liabilities exceeded £6.6m together with a number of other specific provisions and indemnities in relation to specific risks, including certain misrepresentations. The judge concluded that these arrangements reflected the parties having “gone to considerable trouble to set up contractual procedures to deal with claims likely to arise under and in respect of the agreement within the four walls of the agreement”. The buyer’s counsel submitted that the short form entire agreement wording in the SPA should be construed as excluding claims for contractual misrepresentation, but not statutory misrepresentation. The judge in fact determined that drafting of the clause should be treated as carrying its ordinary meaning and exclude all misrepresentation claims, particularly in the context of the provisions to deal with relevant risks negotiated by the parties in the rest of the SPA.
This is a surprising judgement, as the Courts have previously required exclusions of liability to be clearly set out and that certain well-established formulations be used in doing so.
Litigation of this type is very much a game of two halves, and it will be interesting to see whether the buyer attempts to appeal this judgement. For now, best practice is still to use the classic entire agreement clause wording to ensure that the construction of a particular contract is such that the short-form wording used in this case is not found to be effective. The case may, however, provide a potential route to successfully defend misrepresentation claims where the drafting of the contract isn’t ideal.
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