Insights - 05/07/2018

No Red Card for Entire Agreement Clauses

As the World Cup continues to grip the nation, it appears that not even the legal world remains unaffected by footballing events.

In the recent case of NF Football Investments v NFFC Group Holdings Limited, the Court looked at the legal effect of representations made by one party to another party if such representations fall outside of a written contract which expressly purports to comprise the “entire agreement”.

The claimant had purchased Nottingham Forest Football Club Limited from the defendant under a share purchase agreement (SPA). Amongst other claims, the claimant was seeking damages for a misrepresentation in a spreadsheet provided by the defendant to the claimant prior to the purchase. The spreadsheet incorrectly stated that the liabilities of the club were around £6.5m when in fact they exceeded £10m. The defendant sought to strike out the claim on the basis that the SPA included an “entire agreement” clause.

Previously the Courts have been reluctant to imply an exclusion of non-contractual claims (such as misrepresentation) merely because of an entire agreement clause. However, in this case, the Court held that the entire agreement clause did operate to preclude misrepresentation claims and the claim for damages was struck out without appeal.

So what was different here? The Court distinguished this case from others due to the particular language used in the entire agreement clause and the way in which other parts of the SPA supported the defendant’s argument. In short, decisions such as these will always be dependent upon the drafting of the clause and, importantly, its context. This judgment demonstrates that, in the correct circumstances, an entire agreement clause can be effective, on its own, in defending a claim for misrepresentation.

It is worth noting that entire agreement clauses are not just restricted to share purchase agreements and are common in many types of contract.

For instance, as the process of winning work becoming increasingly more complex and protracted for suppliers (involving pitches, rounds of emails, powerpoint presentations, calls and site visits), it is important to ensure that supply agreements include well-drafted entire agreement and exclusion clauses. This avoids confusion over what may or may not have been agreed or promised during the marketing, client development and negotiation phases. Equally, when negotiating the lease of a property, the representations made by the landlord with regards to the maintenance of the property or the rights of the lessee may not be enforceable if they are not committed to binding contractual obligations and misrepresentations are precluded by the lease.

The takeaway is to ensure that the parties are clear on what representations they have relied on in coming to an agreement and that these remain enforceable after entering into a binding contract (either by maintaining a right to bring claims for misrepresentation or including the representations within the agreement). If the parties agree that extra-contractual representations are not enforceable and choose to restrict causes of action, these provisions need to be clear and consistent with the rest of the agreement.

If you would like advice or assistance on any of the issues raised in this blog please contact Greg Vincent. Greg is partner in the Corporate and Commercial team and can be contacted by email at [email protected] or by telephone 0208 971 1033. 

Other articles from July's newsletter

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Although correct at the time of publication, the contents of this newsletter/blog are intended for general information purposes only and shall not be deemed to be, or constitute, legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. Please contact us for the latest legal position.