11th July 2018
Walker Morris’ Head of Commercial Dispute Resolution, Gwendoline Davies, looks at the risks associated with pre-contractual statements and how parties can try to avoid liability for misrepresentation. In that context, Gwendoline considers a recent, surprising High Court case concerning the interpretation of an ‘entire agreement’ clause, and offers some best-practice advice for businesses.
When parties consider doing business together, a multitude of enquiries, discussions and negotiations take place before any deal is done. Marketing campaigns, promotional offers and other communications have often also been undertaken prior to the contemplation of any particular enquiries or leads. At this pre-contract stage, myriad representations are made, many of which could give rise to liability. The law of misrepresentation is not straightforward. It comprises elements of common law, equity and statute (the Misrepresentation Act 1967, MA) and it includes characteristics of both contract law and tort. To avoid inadvertently leaving itself open to legal challenge, therefore, it is important for any business to understand the types of statements and representations that can found the basis of a claim.
A misrepresentation is an untrue statement of fact or law upon which a party relies in being induced to enter a contract, which thereby causes the relying party to suffer loss. Misrepresentations can be express written or oral statements; they can be implied by words or by conduct; made when making plans or projections for the future; arise via half-truths; or arise where a statement was true when it was made, but later becomes untrue if circumstances change. Misrepresentations can occur more readily in relationships of utmost good faith, such as partnerships or contractual arrangements requiring full disclosure. It is also possible for a statement made in negotiations to be a representation that becomes a binding term of the contract itself. Liability can therefore arise both under the MA and for breach of contract.
There are certain steps, however, that can be taken to exclude or limit liability for misrepresentation.
It is possible to insert an exclusion clause into a contract which seeks to exclude or limit liability for misrepresentation. If an exclusion clause is ambiguous or uncertain, it will generally be construed against the party trying to rely on it (the contra proferentem rule) and so, to be on the safe side, the clause should expressly state that it covers misrepresentation or tort, as well as breach of contract. As with the general laws on exclusion clauses, whether or not a clause which purports to restrict liability for misrepresentation is effective will depend upon the application of the Consumer Rights Act 2015 (in the case of business to consumer contracts) and on the ‘reasonableness test’ in the Unfair Contract Terms Act 1977 (UCTA).
An ‘entire agreement’ clause (which often forms part of the standard ‘boilerplate’ of a commercial contract) attempts to provide that the contract constitutes the entire agreement between the parties, such that it supersedes any prior agreements, negotiations, or heads of terms. Entire agreement clauses have their limitations, however, and it is a common misconception that they will necessarily prevent liability for misrepresentation. In fact, case law has generally suggested that it will be a risky strategy indeed merely to rely on an entire agreement clause in defence of a misrepresentation claim. Instead, the best advice to date has always been that, because reliance on a statement as an inducement to enter into a contract is one of the requirements of an actionable misrepresentation, parties should expressly exclude liability by means of a specific ‘non-reliance statement’.
In the recent case of NF Football Investments Ltd v NFCC Group Holdings Ltd , however, the High Court has interpreted a straightforward entire agreement clause, which did not contain any non-reliance wording nor any wording to exclude liability, as being a complete answer to a misrepresentation claim. On the face of it, this decision seems to fly in the fact of established Court of Appeal authority  that, in order for liability for misrepresentation to be effectively excluded, very clear wording to that effect and/or a non-reliance clause is needed.
Finding for the defendant and dismissing the claim summarily (without trial), Master Bowles in the High Court stated that the relevant authority does not go so far as to establish that an effective provision purporting to exclude liability must be in any particular form. Instead, it is the context and construction of the particular clause in question which matters. The Master then placed heavy reliance on the facts that:
The NF Football decision is unusual and, whilst the Master’s seeming departure from existing authority may be defensible and justified on the facts, it should probably not be seen as indicating an entirely new approach to entire agreement clauses. The case does suggest, however, that the door has been opened a little wider for those defendants seeking to rely upon entire agreement statements to defeat misrepresentation claims.
In any event, there are a number of practical points and best-practice tips of which all businesses should be aware:-
For further information, advice or assistance, please contact Gwendoline Davies or any member of the Commercial Dispute Resolution Team.
  EWHC 1346 (Ch)
 Axa Sun Life Services plc v Campbell Martin Ltd  EWCA Civ 133