OnHand Counsel

Corporate and Commercial Solicitors

 I overpaid because you lied to me

November 2018

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I’m not into football much myself but this recent Court of Appeal case relating to the sale of Nottingham Forest FC raises interesting non-football-related legal issues about how sellers can try to wriggle free from being liable for making lies which persuade buyers to buy.


In an agreement to sell a business (whether a sale share or an asset sale) it is normal for a buyer and seller to spend much of their time negotiating warranty provisions to go in the contract. ‘Warranties’ are statements of facts that a buyer has relied in agreeing to do the deal; for example, that the company isn’t being sued by anyone. If any warranty isn’t true, the seller can qualify it by setting out details in a ‘disclosure letter’; for example, details of the company being sued by so-and-so. You will often end up with a 70 page sale agreement of which well over half contains warranties and clauses regulating how warranty claims can be dealt with, plus a separate disclosure letter. If a warranty later proves to be untrue, and for reasons which weren’t disclosed, then the buyer can make a claim against the seller for breach of contract.

If the buyer doesn’t like a particular disclosure, a number of things might happen. For example, the buyer might insist on reducing the price; or might ask for a specific indemnity clause setting out that the seller will be liable to compensate the buyer or the target company if a disclosed potential liability comes to pass. If the seller doesn’t like it, the seller is of course free to walk away from the deal (it’s always useful to have this option when negotiating a deal with someone – or some country or union of countries!).

After spending so much time and effort negotiating all these warranties and indemnities, the seller will quite naturally want to ensure that the final signed sale contract covers all his potential liability to the buyer for issues relating to the transaction. He wants a bit of certainty that the heavily negotiated contract and disclosures the parties have agreed and signed and locked away in a cupboard will be the conclusive paperwork relating to the whole deal. He will not want the buyer sometime later to be able to bring a completely separate claim for misrepresentation from left field, when the buyer had all the opportunity it needed to protect its position when it was negotiating the contract. So, a seller will want to insert an entire agreement clause and a non-reliance clause.

What is misrepresentation?
Whatever warranty provisions a contract may contain, a seller can also be liable under the separate laws of misrepresentation for incorrect statements he has made which the buyer then relied on when entering into a contract. There are different types of misrepresentation – fraudulent, negligent or innocent. Misrepresentation is a tort, and the remedies you can claim for misrepresentation are worked out on a different basis from the remedies you can claim for a breach of contract. This is quite a tricky area of the law. Rather than explain it here, I will include a run-through in a separate legal briefing to follow shortly if enough people ask me to do so (effectively this legal briefing will become a letter of two halves, says I in a weak attempt at football humour…).

Any attempt by a seller in a contract to exclude or limit his liability for misrepresentation will be governed by the Unfair Contract terms Act 1977 (‘UCTA’), which says that it must satisfy a ‘reasonableness test’. This is quite a broad test which gives courts some leeway to decide what was fair or not in any particular case. Abuse of a stronger bargaining position can be one of many factors making an exclusion unreasonable. But the law is clear that any such exclusion or limitation clause must be clearly worded, and that any ambiguity must be construed against the seller. And it’s definitely not reasonable to exclude or limit liability for fraudulent misrepresentation.

What are non-reliance and entire agreement clauses?
A ‘non-reliance’ clause states that a buyer hasn’t relied on any representations made by the seller other than those which might have been specifically set out in the contract. The way the law works this then means that a buyer would be ‘estopped’ from making a claim for misrepresentation because effectively he would be breaching his own representation that he hadn’t relied on it. Since a 2010 case it has become settled law that although these clauses aren’t worded in a way which says that the seller excludes or limits liability they still need to pass the UCTA ‘reasonableness test’.

Sometimes these clauses are included as part of an ‘Entire Agreement’ clause which states that this is the entire agreement between the parties relating to its subject matter and overrides anything else they may have previously been thought to have agreed.

After all this background, I would like to tell you about the recent Court of Appeal case which looked at all these issues together.


This case involved the sale of the shares in Nottingham Forest Football Club by a company owned by Fawaz Al-Hasawi. It was an unusual deal in that (i) the price was only £1, but there were loads of liabilities which the buyer would be agreeing to take over; and (ii) rather than set out lengthy warranties the agreement was based on a simple balance sheet exercise where the seller agreed to indemnify the buyer to the extent that the liabilities ended up proving to be more than £6.6m. This figure was reached because the seller had produced a spreadsheet setting out what it said were the club’s liabilities, which totalled £6,566,213.

The share sale agreement had an entire agreement clause which said in clause 12: “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, whether written or oral, relating to its subject matter”.

Pretty wide wording, you’d have thought. Wider than you see in most entire agreement clauses.

Clause 20 said: “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.”

At the end of the day the buyer said that it was robbed because the liabilities in the spreadsheet had been misrepresented and proved to be over £10m.

Although the buyer had a potential claim under the indemnities in the agreement, it also wanted the option to bring a claim against the seller for misrepresentation, for three reasons:

•    The indemnity only clicked in for liabilities in excess of £6.6m, whereas the spreadsheet misrepresented that the liabilities were £34,000-odd less than this, so a misrepresentation claim might pick up this difference.

•    As explained in my next legal briefing (if there is enough demand for it) there was a possibility that the different way of measuring damages for a tortious misrepresentation claim could result in a larger claim than a claim under the indemnity in the agreement.

•    The various conditions in the agreement as to how a claim under the indemnity could be made, such as those setting time limits and notification procedures, wouldn’t apply to a tortious misrepresentation claim.

The seller argued that it was perfectly clear from the entire agreement clause that a misrepresentation claim outside the agreement couldn’t be made. The High Court agreed with the seller. The buyer appealed to the Court of Appeal.

What did the Court of Appeal decide?

The Court of Appeal overruled the High Court, and decided in favour of the buyer. It said that because UCTA applied the wording had to be very clear in order to exclude or limit liability for misrepresentation. Its reasons why clause 12 wasn’t clear enough to do this included that:

•    The main purpose of an entire agreement clause was to make clear that the contract set out the entire agreement between the parties. So for example it meant that no other contractual clauses could be read into it, and no other collateral contracts or collateral warranties or representations could be said to exist. But claims for tortious misrepresentation are not contractual claims. If the seller had wanted this clause to exclude liability for tortious misrepresentations as well as possible contractual misrepresentations it should have made this absolutely clear. As there was possible ambiguity this needed to be construed against the seller as required by UCTA.

•    Clause 20 would have been pointless otherwise, as the only possible other remedies were for misrepresentation.

•    The agreement didn’t include the usual warranties you’d see in most share sale agreements. The indemnity only covered understated liabilities. Clause 12 should have been much more clearly worded if the seller had wanted to exclude any different type of claim that the buyer might have wanted to make against the seller for misrepresentation, for example based on the value of assets owned by the club not being as much as represented by the seller. The court didn’t have flexibility to interpret clause 20 by saying that it was effective to exclude misrepresentations about liabilities but not about assets; so it had to say that it was completely ineffective to exclude any kinds of tortious misrepresentation claim.


This would have taken many lawyers and people who think they know clear and strong wording in a contract when they see it by surprise.

My next legal briefing (if there is enough demand for it) goes into some more detail for those of you burning to know more about some of the relevant laws.

Tips for a seller

•    Include a clear statement in your contract that the buyer hasn’t relied on any representations at any stage other than the warranties set out in the written contract, and that you exclude any liability for misrepresentation in tort as well as contract.

•    Perhaps set this out in a separate clause to your entire agreement clause.

Case: Fawaz Al-Hasawi v Nottingham Forest Football Club and Others (2018) EWHC 2884 (Ch)