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IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
CHANCERY APPEALS (ChD)
On Appeal from Master Bowles
|Royal Courts of Justice
The Rolls Building
London EC4A 1NL
B e f o r e :
HHJ DAVID COOKE
| Fawaz Al-Hasawi
|- and -
|Nottingham Forest Football Club Ltd
|NF Football Investments Ltd
|Third Party/ Appellant
|NFFC Group Holdings Ltd
|Fourth Party/ Respondent
Adam Baradon and Hollie Higgins (instructed by Squire Patton Boggs LLP)
for the Appellant
Tony Hickman (instructed by Browne Jacobson LLP) for the Respondent
Hearing date: 24 October 2018
HTML VERSION OF JUDGMENT APPROVED
Crown Copyright ©
HHJ David Cooke:
- The Appellant (the third party in the action) appeals with the permission of Arnold J against the order of Master Bowles made on 6 June 2018, by which he allowed an application for summary judgment made by the Respondent (the fourth party in the action) striking out the Appellant's claim, insofar as based on section 2 of the Misrepresentation Act 1967. At the conclusion of the hearing I informed the parties that the appeal would be allowed, with reasons to follow. These are those reasons.
- The action arises out of a share purchase agreement entered into on 12 April 2017 by which the Appellant agreed to buy from the Respondent the whole of the issued share capital in Nottingham Forest Football Club Ltd (the defendant in the action, which I will refer to as the Club). I will refer to the Appellant as the Buyer and to the Respondent as the Seller, as they were at the hearing.
- The Club was heavily indebted, so the structure of the sale agreement (the SPA) was that the shares were sold for a nominal consideration of £1 and the liabilities were addressed firstly by restructuring and limiting the amount of liabilities in respect of loans made by Mr Fawaz Al-Hasawi (the claimant in the action and the ultimate and official owner of both the Club and the Seller) and secondly by the Seller indemnifying the Buyer against any liabilities of the Club outstanding as at 31 December 2016, to the extent they exceeded £6.6 million.
- While the transaction was under negotiation, the Seller provided to the Buyer various documents by way of disclosure through a virtual data room. These included a spreadsheet setting out what are said to be the liabilities of the Club at the relevant date, totalling £6,566,213. Clearly, the figure of £6.6 million which was the starting point for the indemnity was based on that number, rounded up to allow a small margin.
- The Buyer's case is that at the relevant date the club's liabilities were in fact in excess of £10 million, so very substantially more than the amount stated in spreadsheet. In this action, they claim under the contractual indemnity an amount equal to the difference between what they say is the true amount of the liabilities and £6.6 million.
- There is also however a claim pleaded under the Misrepresentation Act in which it is pleaded that the information contained in the spreadsheet provided through the virtual data room was a representation that the relevant liabilities amounted to the slightly lower figure of £6,566,213, that this representation was false because the true amount of liabilities was higher as stated above and that it was relied on by the Buyer. Pursuant to that claim the Buyer seeks damages which it quantifies as being the difference between the true value of the liabilities and £6,566,213. The claim is not presently put on the basis that the misrepresentation was fraudulent, although the Buyer has indicated that it may seek to amend its statement of case in that respect, having already made allegations that Mr Al-Hasawi was actually aware of at least some of the liabilities that were allegedly omitted from the spreadsheet.
- The two aspects of the claim are therefore very similar, being based on essentially the same facts, though not they are not identical. The loss claimed under the misrepresentation claim is slightly greater, since it makes no allowance for the rounding up margin of about £34,000 allowed for in the contractual indemnity mechanism. It is also pointed out that the basis of quantification of loss in the misrepresentation claim, which is based on the tortious measure, is not necessarily the same as that under the contractual indemnity, so that it may be held at trial, if the misrepresentation claim is upheld, that the loss recoverable is more or less than the amount of the additional liabilities. Further, if the misrepresentation claim proceeds it is not subject to various contractual restrictions such as notice requirements and time limits applying to the indemnity.
- The application to strike out the misrepresentation claim was founded on clause 12 of the agreement, which is in the following terms:
"12. Entire Agreement
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. "
- Before the Master, as before me, Mr Baradon submitted that in interpreting entire agreement clauses, the courts have consistently pointed to the difference in principle between a clause which has the effect that statements and events prior to the execution of a written agreement may not be relied upon as having contractual or near contractual effect (for example by amounting to collateral agreements or collateral warranties) and a clause which operates to exclude other claims of a non-contractual nature, such as claims for relief arising from misrepresentation of fact. The Master dealt with that argument in his judgment, referring in particular to Axa Life Services Plc v Campbell Martin Ltd and others  EWCA Civ 133.
- In that case, the relevant clause read as follows:
"This agreement… [constitutes] the entire agreement and understanding between you and us in relation to the subject matter thereof… This agreement shall supersede any prior promises, agreements, representations, undertakings or implications whether made orally or in writing between you and us relating to the subject matter of this agreement…"
- Rix LJ, with whom the other Lords Justices agreed in this respect, cited with approval the judgment of Lightman J in Inntrepreneur Pub Co v East Crown Ltd  Lloyd's Rep 611 summarising the issue of construction (para 87):
"First, he expressed the purpose of such a clause in these terms, at para 7:
'The purpose of an entire agreement clause is to preclude a party to a written agreement threshing the undergrowth and finding in the course of negotiations some chance remark or statement (often long forgotten or difficult to recall or explain) on which to found a claim such as the present to the existence of a collateral warranty… For such a clause constitutes a binding agreement between the parties that the full contractual terms are to be found in the document containing the clause and not elsewhere.'
88. He distinguished between collateral warranties and misrepresentations in the following remarks:
'An entire agreement clause does not preclude a claim in misrepresentation, for the denial of contractual force to a statement cannot affect the status of the statement as a misrepresentation. The same clause in an agreement may contain both an entire agreement provision and a further provision designed to exclude liability e.g. for misrepresentation or breach of duty.' "
- Rix LJ held that the clause in issue before him was as a whole "concerned with agreements rather than misrepresentations" but went on to say (para 80):
"Nevertheless the word 'representations' does appear, albeit it will be seen that it is completely sandwiched between words of contractual import, namely prior 'promises, agreements… Understandings or implications'. It will also be observed that [it] does not in terms date either that no representations have been made, or that no reliance has been placed on any representations, or that liability for (mis)representations has been sought to be avoided.
81. In the circumstances, I would be inclined, subject to authority, to regard clause 24 as being concerned only with matters of agreement, and not with misrepresentation at all. The essence of agreement is that it is concerned with matters which the parties have agreed. The essence of misrepresentation, however, is that it is not concerned with what the parties have agreed, but rather with inaccurate statements (innocently, negligently or fraudulently inaccurate statements) which have been made by one party to the other, have been relied on by the representing in entering into their agreement, and which may give the representing rights to rescind that agreement and/or claim tortious or quasi tortious damages by reason of loss arising out of entering into the agreement. "
- Rix LJ went on to consider what was meant by "supersede", particularly in the context of the reference to representations. He referred to the decision of Ramsay J in BSyB Ltd v HP Enterprise Services UK Ltd  EWHC 86 (TCC) where the relevant clause provided that they written agreement and its schedules "constitute the whole agreement between the parties in relation to its subject matter and supersede any previous discussions, correspondence, representations or agreement…". Ramsay J said:
"Those words do not, in my judgment, amount to an agreement that representations are withdrawn, overridden or of no legal effect so far as any liability for misrepresentation may be concerned. The provision is concerned with the terms of the Agreement. It provides that the Agreement represents the entire understanding and constitutes the whole agreement. It is in that context that the Agreement supersedes any previous representations. That is, representations are superseded and do not become terms of the Agreement unless they are included in the Agreement. If it had intended to withdraw representations for all purposes then the language would, in my judgment, have had to go further."
- In reaching his own conclusion that the clause before him did not exclude liability for misrepresentation Rix LJ said (para 94):
"… No doubt all such cases are only authority for each clause's particular wording: nevertheless it seems to me that there are certain themes which deserve recognition. Among them is that the exclusion of liability for misrepresentation has to be clearly stated. It can be done by clauses which state the parties' agreement that there have been no representations made; or that there has been no reliance on any representations; or by an express exclusion of liability for misrepresentation. However, save in such contexts, and particularly where the word "representations" takes its place alongside other words expressive of contractual obligation, talk of the parties' contract superseding such prior agreement will not by itself absolve a party of misrepresentation where its ingredients can be proved."
The Master's Judgment
- The judgment of the master is published with the neutral citation number  EWHC 1346 (Ch). In it, the Master refers to the terms of clause 12 and also to clause 20, upon which the Buyer relies:
"20. Except as expressly provided in this agreement, the rights and remedies provided under this agreement are in addition to, and not exclusive of, any rights or remedies provided by law. "
- Consequently, any right to pursue a misrepresentation claim would be available in addition to the specific indemnities and other remedies available pursuant to the contract, unless "expressly" excluded by the terms of the SPA. Clause 12 was the only candidate for such an exclusion.
- The master noted the specific contractual indemnity against excess liabilities, contained in clause 7.1 of the SPA, and also the provisions of clauses 7.3 and 7.4 which provided specific indemnities for any losses arising from statements set out in schedule 7 to the SPA being inaccurate or untrue. He noted that all these claims were subject to contractual limitations including provisions for notification and time limits within which they could be brought. Other provisions of the agreement, relating to indemnities in respect of loans made by Mr Al-Hasawi and "Leakage" (broadly, payments or other benefits by the Club to Mr Al-Hasawi or connected parties) were also subject to detailed but somewhat different regimes for notice and time limits.
- In relation to these provisions, the master said:
"15. The foregoing… is sufficient to demonstrate, as I see it, that the parties to the agreement in this case went to considerable trouble to set up contractual procedures to deal with claims likely to arise under and in respect of the agreement within the four walls of the agreement.
16. This, as it seems to me, was particularly the case and particularly the apparent intention of the parties in respect of claims relating either to any misstatement of liabilities or claims arising out of a failure to accurately identify material contracts or play such contracts in the virtual data room, or to accurately identify the effect of the share purchase agreement, or its implementation, in generating new liabilities for the club. Both these latter failures would, inevitably, have had the effect of minimising the liabilities of the club and it is, as I see it, for this reason that misstatements in respect of those matters were made the subject of similar contractual indemnities and a similar regime of notification and limitation as is provided by the share purchase agreement in respect of any under declaration of liabilities as at the Liability Statement Date.
17. In my view, the apparent intention of the parties to deal with putative claims under, or in respect of, the share purchase agreement by way of contractual processes created within the structure of the share purchase agreement forms an important part of the contractual matrix and, for that reason, affords helpful guidance to the court in construing the Entire Agreement clause. "
- After referring to AXA , the Master said:
"27. I do not, however, read Rix LJ's judgment as establishing that an effective clause purporting to exclude liability for misrepresentation must, as a matter of law, or construction, be set out in a particular form, or in one of the particular ways mentioned in his judgment. The effect and meaning of a particular clause in the contract must always be a matter of the construction of the particular clause set in its particular context.
28. In this case, I am satisfied that the intention of the parties, in respect of clause 12 of the share purchase agreement, was that it should exclude claims in misrepresentation, including statutory misrepresentation and, therefore, that clause 20 of the agreement does not operate to preserve [the Buyer's] right to make such a claim.
29. It seems to me that the deliberately wide language used in clause 12, read in context of the considerable steps which have been taken by the parties to enable claims of a kind likely to arise under, or in respect, of the agreement to be dealt with within the four walls of the agreement and by reference to contractual structures created within the agreement, demonstrates that the parties' core contractual intention was that disputes arising under, or in respect of, the agreement should be resolved within the contractual framework established by the share purchase agreement and, consequently, that the parties were intended to be precluded, or excluded, to a significant extent, from making any claims arising out of, or in respect of, the agreement other than via the contractual structures created by the share purchase agreement; including, therefore, claims in statutory misrepresentation should such claims otherwise arise.
30. .. I do not think that the matters which, by clause 12, are expressed to be superseded, or extinguished, by the clause are intended, or expressed, to be confined only to matters of a contractual nature or intended, therefore, to exclude any claims which may might arise out of, or be based upon, prior, informal, or collateral, agreements made between the parties…
31. The matters said to be superseded or extinguished by clause 12 are expressed in the widest terms. They include matters or a potentially contractual nature, such as 'drafts',' agreements, 'understandings',' promises' and 'warranties'. They also include matters such as 'correspondence',' negotiations', 'assurances' and of course 'representations', which do not necessarily, or even obviously, embrace matters of an exclusively contractual nature but which would, awkward, equally, refer or relate to factual matters asserted, or assured, in the course of negotiations, or in correspondence, or, as stated in clause 12, made otherwise the subject of representations.
32. I do not think, therefore, that this case can be equated with AXA, where the word 'representation' was sandwiched in between words of an obviously contractual nature and which in consequence derived its meaning (as relating only to representations of a contractual nature) from that context. In this case the word 'representations' is to be found among a range of words, some of which may have the flavour of contract and some which do not. The word itself, other than where a different meaning can, as in AXA, be derived from context, is a word which in its usual legal context relates to or refers to, factual statements of a noncontractual nature. In the circumstances, I can see no reason to conclude that the parties intended to limit the meaning of the word 'representations' in clause 12 such that it embraces something less than it is usually understood legal meaning.
33. Rather, it seems to me that the other language of clause 12 tends, strongly, towards the conclusion that the word 'representations' should bear what I see as it is more usual meaning.
34. Had it been the case, as in AXA, that clause 12 only provided that the share purchase agreement should supersede the various matters catalogued in the clause, one could well see that the phraseology would be apt to the supersession, or replacement, of a prior agreement, of whatever nature, but would not be apt, or appropriate, language to negate a previous factual statement. One readily talks of an agreement superseding another. One does not readily talk of an agreement superseding a fact.
35. Again, however, that is not the language used in this case. In this case, the clause provides that the share purchase agreement 'extinguishes… all previous… representations'. That language is apt to negate a previous factual statement. Its clear effect is to record that, as between the parties, it has been agreed that all previous representations have been extinguished and, therefore, that as from the execution of the agreement there are extant no existing representations upon which a claim for misrepresentation, statutory or otherwise, could be founded.
36. That this is the intended construction and meaning of the words used…is supported… by the context against which clause 12 is to be construed; namely a context in which the parties have set up alternative contractual structures to deal with claims of the kind likely to arise in respect of the agreement and where, therefore, the likely and, as I find, their actual intention was to preclude the parties from bringing such claims other than within and via the agreed framework. "
Discussion and conclusion
- The major plank of the master's reasoning was, therefore, the contractual context in which elaborate provision was made for specific claims that might be brought, including claims relating to liabilities exceeding the specified threshold, or arising from the statements expressly set out in schedule 7 to the agreement, some of which related for instance to matters such as the existence of undisclosed agreements which might, as he observed, have the effect of imposing undisclosed liabilities. From this he inferred an intention that claims in misrepresentation should not be brought outside these specific provisions, and consequently that clause 12 should be interpreting as conforming to that intention and excluding such claims by "extinguishing" any prior representations for all purposes.
- I do not doubt that, in principle, the court is entitled to have regard to all the provisions of an agreement in construing any of them. As is often said, the agreement must be construed as a whole, or construction may be described as "a unitary exercise". Nor, in principle, was it an error, still less a heresy, as Mr Baradon submitted, for the master to make inferences as to the intention of the parties. The exercise of construction is one of establishing the intention of the parties, as expressed in the agreement, which is an objective exercise based on the language they have used, in the context in which they have used it. The master did not go beyond this in reaching the conclusions that he did about intention; he did not, for instance, have regard to any extraneous evidence about their subjective intention.
- That said, however, unfortunately I do not agree that contractual language providing for one type of claim carries an implication that all other types of claim are intended to be excluded. I can quite see, of course, that where the parties address their minds to a particular type of claim and reach elaborate negotiated provisions about how such a claim may be pursued and any limitations upon doing so, it would be sensible for them to ensure that those provisions and limitations cannot be evaded by framing what is essentially the same claim in some other way. That I think was a major factor in the master's reasoning, since he noted that the misrepresentation claim is actually being pursued are very similar in nature to the contractual indemnity in respect of excess liabilities that is also pleaded. But even if that were the sole matter in issue, as for instance it might have been if clause 12 had been limited in some way so that it related only to matters that could have been the subject of a claim under clause 7, the court would have to be careful to ensure that it was not going beyond the proper bounds of construction and improving the bargain the parties had actually made by inserting provisions that would make commercial sense but were not actually contained in the written agreement they had made.
- In the present case, if the Seller's construction were correct, no claim could be bought in respect of any misrepresentation, whether it related to matters also governed by clause 7 or not. Mr Baradon gave a potential example; the contractual indemnities deal in effect only with matters affecting the liabilities of the Club. The only reference in them to its assets appears to be in relation to shares in a subsidiary. One may well think that a purchaser would have been given information about assets, such as the properties which are scheduled to the SPA, but if the Seller is correct, no remedy exists if that information was not accurate.
- No attempt was made before the Master or before me to argue that clause 12 could be limited so as to apply only to matters that were essentially duplicative of claims that could be brought under clause 7. The fact that the claim that has actually been brought may be said to be duplicative is irrelevant; in order to support the construction the Seller contends for it would have to be shown that the implication of the specific provisions in clause 7 was that those were the only claims that could be brought, irrespective of the subject matter of such a potential claim. No doubt parties might negotiate such terms, but it seems to me that an agreement to that effect cannot be inferred simply from the fact that express provision is made for one or more particular claims. Clause 7 itself says nothing expressly about exclusion of other claims, so the question is entirely one of inference. In the present context, the general provisions of clause 20 which preserve other rights and remedies unless expressly excluded, would be an additional basis, if one were needed, for concluding that no such inference could be made.
- Further, I do not agree with the master that the use of the word 'representations' in clause 12 in this case can be viewed differently from that in AXA because, as he felt, the surrounding words in that case were exclusively indicative of a contractual meaning and gave 'representations' a meaning that was not its normal legal meaning. First, it is no part of the reasoning in AXA that 'representations' is given any non-normal meaning, but only that it is perfectly capable of referring to representations that might have acquired contractual force, and in the context of the surrounding words and clauses, should be interpreted in that sense. All of the additional terms ('correspondence, negotiations and assurances') that the Master refers to as being not necessarily or obviously matters a contractual nature seem to me to be perfectly consistent with matters that might, in the absence of an entire agreement clause, be relied upon to found a claim to a collateral agreement or collateral warranty. No doubt they might also embrace matters that could give rise to other claims, such as a claim in misrepresentation, but since what must be shown is clear wording establishing an intention to go beyond defining the scope of the contractual agreement and exclude other claims, the mere possibility that the words used might extend to matters that could found such other claims is not sufficient.
- Nor in my view is any such clear intention shown by adding the word "extinguishes" to "supersedes". In the context of an entire agreement clause, it makes perfect sense to talk about something which might have amounted to a prior agreement being extinguished, just as it could be regarded as superseded by the terms set out in the written agreement. It does not, therefore, support any finding that "representations" are "extinguished" in any respect other than that they ceased to have any contractual effect that they might otherwise have borne.
- For these reasons, I respectfully disagree with the Master as to the construction of clause 12, and I allow the appeal.
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