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Entire Agreement Clauses given the red card? Nottingham Forest FC puts contract drafting to the test

  • United Kingdom
  • Litigation and dispute management

22-11-2018

What is an Entire Agreement Clause?

Entire agreement clauses are standard or ‘boilerplate’ terms often used in contractual documents to confirm that the document in question captures the entire agreement between parties.

Such clauses are usually included to stop parties looking beyond the contract and trying to rely upon matters not captured in the contractual document, including, for example: verbal or written promises, agreements by email, draft agreements, understandings (whether written or verbal), comments made during a negotiation or chance remarks. 

Entire Agreement Clauses give certainty to the bargain made between parties, so that one does not need to go “threshing through the undergrowth[1] to remember what might or might not have been said prior to the signature of a contractual document.  However, if not drafted with due care, they can be subject to challenge.

That is what happened in the recently reported case of Fawaz Al-Hasawi v Nottingham Forest Football Club and Others (2018) EWHC 2884 (Ch) with alarming results for those who consider that the contract is king.

Facts                                                                                        

Nottingham Forest Football Club (the “Club”) was sold by the former owner, Fawaz Al-Hasawi and his company vehicle NFFC Group Holdings Ltd (“the Seller”). A share purchase agreement (“SPA”) governing the sale was entered into on 12 April 2017.  The SPA contained an entire agreement clause, which read as follows:

This agreement (together with the documents referred to in it) 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 Club was sold by the Seller for a nominal consideration of £1.  In a spreadsheet  setting out what were purported to be the Club’s liabilities prior to the sale, the liabilities totalled £6,566,213. The SPA provided that the Seller would indemnify the new owners of the Club against any liabilities if they exceeded £6.6 million. Court proceedings were commenced, where it was claimed that the liabilities had been misrepresented by the Seller and actually totalled over £10 million, giving rise to a recoverable loss of approximately £3.8 million. 

The Seller claimed that the SPA contained a contractual procedure for dealing with misrepresentations of the Club’s liabilities and that the entire agreement clause in the SPA was drafted to exclude any alternative claim for misrepresentation. The SPA contained a strict contractual time limit with particular notification requirements where compliance with those requirements was disputed by the Seller, however, there was scope to argue that the SPA provisions did not include specific enough wording to preclude a statutory misrepresentation claim. 

The High Court held that the entire agreement clause within the SPA effectively doomed the Club’s challenge to failure. The Club subsequently sought to appeal that decision.

Outcome

Deciding in favour of the Club, the Judge found that the SPA did not restrict the Club from making a claim for misrepresentation. The claim for statutory misrepresentation, although similar to the claim under the contract for breach of indemnity, was determined not to be excluded by the SPA and the entire agreement clause within it

The Judge did not agree with the first instance Court decision that contractual language providing for one type of claim carries an implication that all other types of claim are intended to be excluded.  He found that the relevant clause did not expressly exclude other claims. It was held that clear words are needed to exclude misrepresentation claims and an entire agreement clause that sets out the scope of the agreement is not sufficient. Parties must go further and include "clear wording establishing an intention to go beyond defining the scope of the contractual agreement and exclude other claims”[2]. If the Seller’s argument was correct, no claim could be bought in respect of any misrepresentation, whether it related to matters also governed by the SPA or not.

This case follows the recent Court of Appeal authority in J N Hipwell & Son v Mrs Claire Szurek (2018) EWCA Civ 674, where it was found that an entire agreement clause, if not tailored to the circumstances, can be subject to challenge.

Comment

This case acts as a reminder that standard entire agreement clauses may not necessarily exclude all claims arising out of a set of circumstances once a contract has been signed. Careful drafting is required in order to accurately reflect the true intentions of the parties. The uncertainty caused by poorly considered and incompletely drafted entire agreement clauses can be considerable.

[1] Paragraph 7, The Inntrepreneur Pub Co v East Crown Ltd [2000] Lloyd’s Rep 611      

[2]                 Paragraph 25 of Judgment

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