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Case law: ‘Entire agreement’ clause in a contract did not exclude liability for misrepresentations made before it was signed

Parties negotiating an agreement who wish to exclude liability for any misrepresentations they make during those negotiations should ensure the agreement expressly and clearly excludes liability, rather than rely on a general ‘entire agreement clause’ to exclude that liability, a recent ruling makes clear. This applies to commercial contracts including employment contracts.

January 2019

This update was published in Legal Alert - January 2019

Legal Alert is a monthly checklist from Atom Content Marketing highlighting new and pending laws, regulations, codes of practice and rulings that could have an impact on your business.

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 relied on an ‘entire agreement’ clause in the sale agreement meaning it was not liable. The seller argued that the entire agreement clause (stating that the agreement constituted the entire agreement between the parties, and anything it had said beforehand, but was not then included in the agreement and could not be relied upon) was effective to exclude liability for any misrepresentations it might have made during negotiations.

The High Court disagreed. It overturned a previous ruling that the clause was effective, where the court had relied on the usual test used for interpreting contracts – ie, the objective test of what a reasonable person in possession of all background information reasonably available to both parties at the time the contract was entered into would think it meant.

Instead, the High Court reinstated the previous rule that express, clear wording is needed to exclude claims for misrepresentation. In this case, there was no such express, clear exclusion of liability for misrepresentation.

The Court said it was irrelevant that the agreement also contained an indemnity under which the seller would compensate the buyer for misrepresentations. Previously, the seller had successfully argued that as the parties had agreed this specific mechanism for dealing with misrepresentation claims, this must mean they had intended the entire agreement clause to exclude liability for misrepresentation. However, the fact the agreement provided a specific remedy for misrepresentation did not imply that the parties intended that to be the only remedy available.

Operative date

  • Now

Recommendation

  • Parties negotiating an agreement (including employers and employees) who wish to exclude liability for any misrepresentations they make during those negotiations should ensure that the agreement expressly and clearly says so, rather than rely on a general ‘entire agreement clause’ to exclude such liability

Case ref: Al-Hasawi v Nottingham Forest Football Club Ltd & Ors [2018] EWHC 2884

Disclaimer: This article from Atom Content Marketing is for general guidance only, for businesses in the United Kingdom governed by the laws of England. Atom Content Marketing, expert contributors and ICAEW (as distributor) disclaim all liability for any errors or omissions.

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