Case law: 'Entire agreement' clause in a contract can exclude liability for misrepresentations made before it was signed

Parties - including employers and employees - entering into an agreement should ensure the wording makes clear whether or not any entire agreement clause is intended to exclude liability for previous misrepresentations, following a recent ruling.

A buyer bought the share capital of a company but later claimed that the seller had misrepresented the amount of its liabilities before the sale. He claimed compensation.

The seller argued that a clause in the sale agreement meant it was not liable. The clause was what is known as an 'entire agreement clause'. The seller argued that the entire agreement clause in this case - saying that the agreement constituted the entire agreement between the parties, and anything said beforehand, but not then included in the agreement, could not be relied upon - included any misrepresentations it might have made.

The High Court agreed. It said the clause had been very widely drafted and - applying the objective test of what a reasonable person in possession of all background information reasonably available to both (not just one of) the parties at the time the contract was entered into would think it meant - the parties had intended it to exclude liability for misrepresentations made before the agreement was entered into.

The agreement also contained an indemnity under which the seller would compensate the buyer for misrepresentations. The Court said that as the parties had provided a specific mechanism for dealing with misrepresentation claims, this must mean the entire agreement clause was intended to exclude liability for misrepresentation.

This ruling goes against the general trend in such cases - that an entire agreement clause only excludes liability for misrepresentation if it expressly says it does.

Operative date

• Now

Recommendation

• Parties entering into an agreement should ensure they are clear whether or not any entire agreement clause in it is intended to exclude liability for previous misrepresentations, and to ensure the wording of the clause expressly sets out their intentions

Case ref: NF Football Investments Ltd v NFCC Group Holdings Ltd [2018] EWHC 1346