Picture this: you are selling your business and negotiating terms with a prospective buyer, all to be included in the contract. You both agree to the terms and include a boilerplate clause to certify that they constitute the “entire agreement” between you. As far as you are concerned, both parties have agreed that the terms of the contract between them are to be found in that document and nowhere else. Correct?
Well, according to the recent High Court decision in Al-Hasawi v Nottingham Forest Football Club Ltd [2018] EWHC 2884, notwithstanding the terms of the agreement, an entire agreement clause in a share purchase agreement did not prevent the buyer from bringing a claim for misrepresentation against the seller.
Entire Agreement Clause
The entire agreement clause is arguably one of the most important boilerplate clauses. These clauses are included in written agreements to prevent the relevant parties from “threshing the undergrowth” to find statements made during pre-contractual negotiations (which are not included in the final agreement) and claiming that these constitute additional terms of the agreement or some sort of side agreement.
Background and Decision of the Al-Hasawi case
A share purchase agreement (“SPA”) was drafted to govern the sale of Nottingham Forest FC by former owner, Fawaz Al-Hasawi (“the Seller”). Following the sale, the buyer demanded that Nottingham Forest FC’s liabilities had been misrepresented, claiming that they were closer to £10m, instead of the £6m stated by the Seller. The SPA did include an entire agreement clause, which read as follows:
“This agreement 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”.
The SPA provided that the Seller would indemnify the new owners of Nottingham Forest FC against any liabilities if they exceeded £6.6 million. He relied on this contractual mechanism for dealing with misrepresentations of the club’s liabilities, as well as the entire agreement clause as a fall-back option in the event of any other claim for misrepresentation.
Critically, however, the entire agreement clause had no express wording to eliminate liability for misrepresentation and the High Court held that such claims were not excluded under the SPA, reversing the master’s first instance decision.
Comment
This decision is a stark reminder that clear words are needed to properly avoid misrepresentation claims. Although each case will be decided on its merits, an entire agreement statement which simply states that the terms of the contract are confined to those set out in the written agreement will not sufficiently cater for claims of this nature.
It is essential that entire agreement clauses are drafted correctly, to mirror the true intentions of the parties they bind.