Entire Agreement Clause and Effect

In a recent High Court case, before Master Bowles, the court reiterated the importance of understanding the intention of the parties when considering the implication and effect of contractual clauses.

The case in question was (1) NF Football Investments Ltd (2) Nottingham Forest Football Club Ltd v (1) NFCC Group Holdings Ltd (2) Fawaz Al-Hawsawi [2018] EWHC 1346 (Ch). The contract was a share purchase agreement for the sale of a football club.

Within the terms of the agreement, clause 17 provided that the seller would indemnify the purchaser (P) against any losses that were incurred resulting from the club’s liabilities which exceeded those set out in the liability statement provided by the seller (S) for the purchaser to carry out its due diligence prior to completing the share purchase. Clause 12 purported to be an entire agreement clause, providing that “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 ... relating to its subject matter".

P brought proceedings against S asserting that S had misrepresented the extent of the club’s liabilities, causing P to sustain a loss. S contended that clause 12 effectively precluded the bringing of any claim for misrepresentation when read in the context of the agreement between the parties. Particularly with reference to clause 17, which provided a contractual mechanism by which P could claim for any alleged losses it sustained from any purported misrepresentation.

P argued that the language of clause 12 was not sufficient to exclude liability for misrepresentation, because read strictly it sought to only exclude contractual representations made before the execution of the purchase agreement. P sought to rely on the precedent of AXA Sun Life Services Plc v Campbell Martin Ltd [2011] EWCA Civ 133.

It was held that, while AXA v Campbell provided useful guidance on the construction of entire agreement clauses, the court’s decision in that matter could be distinguished from this case on the basis that the decision in AXA v Campbell related to the interpretation of the specific entire agreement clause with which that case was concerned. It is well established that an entire agreement clause, or any contractual clause seeking to limit liability must clearly state what it seeks to limit. As a matter of practice in standard terms and conditions, such clauses will specifically state that any liability for misrepresentations is excluded or that neither party relied on any prior representations before entering into the contract. In the absence of such specific wording an exclusion clause would not necessarily exclude a claim for misrepresentation.

However, as an overriding principle, the meaning and effect of any contractual clause must be considered in the context of the agreement as a whole. In terms of meaning, the entire agreement clause was expressed in wide terms and, unlike in AXA v Campbell, here the word ‘representation’ must been taken in its normal English meaning and not in its more limited legal meaning. In terms of effect, the entire agreement clause (clause 12) must be considered in light of the indemnity provided at clause 17. The intention of the parties, therefore, must have been that the clause would exclude the bringing of any claims for disputes of this nature, on the basis that the parties would deal with such disputes by using the agreed contractual indemnity scheme instead.

It is more often the case for our clients that contracts are agreed on standard terms and conditions, which more often than not will include exclusion clauses meeting the guidance of AXA v Campbell. That said, this case again reiterates the importance of the intangible element of a legally binding contractual agreement- intention. All contracts must be considered in light of what the parties actually intended (or must have intended) the effect of terms of the agreement to be.  Further, this case demonstrates the critical significance of ensuring clear contract drafting between parties at the outset to prevent such disputes from arising.  It could also provide a basis on which a party may seek to defend a claim for misrepresentation where the contract is specifically silent on that matter.

Written by Uday Patel, Partner, Judge & Priestley LLP


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