In April 2017, Nottingham Forest Football Club was brought by a company controlled by Mr Evangelos Marinakis (the buyer) from Mr Fawaz Al-Hassawi (the seller).
As part of the due diligence process the seller provided the buyer with a spreadsheet which showed the club's liabilities, at the relevant date, as approximately £.6.6 million.
After the sale was completed, the buyer discovered that the club's liabilities actually totalled in excess of £10 million. The buyer brought a claim for damages in misrepresentation, stating they had relied on the inaccurate figures given by the seller.
The seller argued that the buyer could not bring a claim for misrepresentation as liability for misrepresentation had been excluded in the entire agreement clause contained within the sale agreement. The entire agreement clause stated the following:
“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.”
In the first instance decision the Master held that the entire agreement clause did exclude claims for misrepresentation. In finding this the Master considered the clause in the context of the other terms in the Sale Agreement which included indemnities in favour of the Buyer and therefore found that when referring to representations in the entire agreement the parties had intended to exclude liability for misrepresentation.
The judge held that the entire agreement clause did not exclude liability for misrepresentation. The judge commented that clear words are needed to exclude misrepresentation claims and an entire agreement clause is not sufficient.
It was not relevant that the parties had provided for losses to be recovered under an indemnity clause as the parties had not specifically excluded claims for misrepresentation.
This decision highlights the importance of properly considering the effect of standard terms in any agreement.
It is standard practice to include an entire agreement clause which states all of the relevant terms are contained within the agreement and therefore seeks to avoid parties relying on terms contained elsewhere or which were previously discussed as part of negotiations.
To avoid dispute, employers should: