UK High Court holds that an entire agreement clause excludes liability for misrepresentation

IFRS 16 and its impact on EBITDA/debt and financial covenants

Key takeaway

An entire agreement clause may operate to exclude a claim for statutory misrepresentation even in the absence of a non-reliance provision. However it depends upon the drafting in question. So far as loan documentation is concerned, lenders and borrowers alike will need to be alive to the risks associated with one party relying upon extensively drafted entire agreement provisions to effectively limit their exposure in respect of any pre-contractual representations.

What happened?

The case of NF Football Investments Ltd & Anor v NFFC Group Holdings Ltd & Anor [2018] EWHC 1346 (Ch) arose out of the purchase of Nottingham Football Club by the first claimant (NF) from the first defendant (NFFC). NF alleged that NFFC had mispresented the football club’s liabilities based on a spreadsheet lodged in a virtual data room which noted that the liabilities of Nottingham Forest Football Club Limited as at 31 December 2016 stood at £6,566,213.66 whereas NF alleged that the true liability figure stood at £10,363,395. NF argued that it relied upon the spreadsheet when signing up to the share purchase agreement and that the spreadsheet misrepresented the club’s liabilities to the tune of £3,767,706.

The High Court held that an entire agreement clause contained within the share purchase agreement operated to exclude NF’s claim for statutory misrepresentation under section 2(1) of the Misrepresentation Act 1967. In reaching its decision, the High Court noted the following points:

  • The entire agreement clause was widely drafted and excluded “all previous discussions, correspondence, negotiations, drafts, agreements, promises, assurances, warranties, representations and understandings” between the parties, whether written or oral, relating to its subject matter. The High Court concluded that this wording excluded all previous representations, including factual statements, made prior to the execution of the share purchase agreement.
  • The share purchase agreement contained a mechanism for the indemnification of losses of the kind alleged by NF. The High Court considered that the parties had gone to considerable lengths to set up this contractual framework and to ensure that claims of the kind in question would be resolved within the four walls of the agreement alone. Accordingly claims brought outside this contractual framework, including claims for statutory misrepresentation, should not be permitted. 
  • Clause 20 of the share purchase agreement contained a clear statement that the rights and remedies provided under the agreement were “in addition to and not exclusive of any rights or remedies provided by law”. However the High Court was satisfied that the entire agreement clause, taken together with the provisions dealing with the indemnification of specific losses, demonstrated the intention of the parties to exclude claims in misrepresentation, including statutory misrepresentation. Accordingly clause 20 did not operate to preserve NF’s right to bring a claim for statutory misrepresentation.  

Practical implications – contracts generally

This case illustrates the willingness of the courts to look at an entire agreement clause on a case-by-case basis. In reaching its decision, the High Court acknowledged that clauses purporting to exclude liability for misrepresentation do often follow a common path but it was not fatal if a clause failed to follow a conventional form. Specifically it did not matter in this case that the entire agreement clause did not include a non-reliance provision (i.e., a statement to the effect that no representations have been relied upon by any party in entering into the agreement in question).

Whilst we expect the High Court’s decision will be generally well received, we would encourage contracting parties to use entire agreement clauses with care. A few points are worth noting:

  • Wherever possible, contracting parties should include an explicit exclusion of liability for misrepresentation in a contract if that is the intention. A non-reliance statement may achieve a similar purpose. Referring to “representations” alone within a wider entire agreement clause might not be adequate. 
  • Entire agreement clauses should if possible be drafted broadly to capture both contractual and non-contractual matters. In this case, the fact that the entire agreement clause in question referred to “correspondence, “negotiations” and “assurances” made it easier for the court to conclude that the parties intended to exclude non-contractual remedies, including claims in misrepresentation.
  • Reservation of rights clauses are unlikely to be of much use where non-contractual remedies (such as, in this case, claims in statutory misrepresentation) have been excluded by the operation of other terms within the wider contract.

Implications for loan arrangements

Entire agreement provisions of the kind involved in NF Football Investments Ltd & Anor v NFFC Group Holdings Ltd & Anor [2018] EWHC 1346 (Ch) do occasionally feature in loan documentation. They are included, for example, in the Loan Market Association’s (LMA) template mandate letters for syndicated loan facilities as well as its template loan agreements (albeit limited, in the case of the LMA’s loan agreements, to the nature of the contracting parties’ obligations regarding the use of confidential information). Following the case discussed above, both borrowers and lenders alike will need to be alive to the implications of including extensively drafted entire agreement provisions in loan documentation, including the potential to thereby limit a contracting party’s exposure in respect of any pre-contractual statements.

Contact our experts for further advice

Matthew Padian, Jonathan Porteous

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