NF Football Investments Ltd & Anor v NFFC Group Holdings Ltd & Anor

By an amended Claim Form issued on 7^th November 2017, the Claimants, NF Football Investments Limited (NF) and Nottingham Forest Football Club Limited (the Club), seek substantial payments from the Defendants, NFFC Group Holdings Limited (NFF) and Fawaz Al-Hasawi (Mr Al-Hasawi), arising out of a share purchase agreement, dated 12^th April 2017, whereby NF purchased all the shares in the Club from NFF.

There are related proceedings in this court between Mr Al-Hasawi and the Club in respect of loan payments allegedly due to Mr Al-Hasawi pursuant to a deed, described as a deed of facility and variation, entered into between, inter alios, Mr Al-Hasawi and the Club and dated 18^th May 2017 (the loan proceedings). Under that deed, provisions exist allowing the Club to make set offs against the loans in respect of monies said to be due to NF under the share purchase agreement which have been duly notified to NFF pursuant to a notification procedure laid down in the share purchase agreement.

At the hearing in this matter, on 24^th April 2018, I indicated that I would give permission to the Club to bring a Part 20 Counterclaim against Mr Al-Hasawi and NFF and to join NF as a co-claimant in that Part 20 Counterclaim; thereby bringing all relevant parties and all relevant claims into one set of proceedings I further indicated that that Counterclaim should be in substantially the same form as the draft amended Particulars of Claim then before me and that the Claimants should serve a copy of their proposed draft Counterclaim no later than seven days prior to a case management conference to be listed before me in both Claims on 6^th June 2018.

In so doing, I explicitly left open to the Defendants, in these proceedings, the capacity, or entitlement, in due course, to apply to strike out certain of the matters currently pleaded in the proposed amended Particulars of Claim, including, specifically, a claim to rectify the share purchase agreement such as to provide that the rights and indemnities given to the Club under that agreement were directly enforceable by the Club and averments in the amended Particulars of Claim that certain communications between the parties had constituted appropriate notifications for purposes both of liability under the share purchase agreement and in respect of the Club’s entitlement to make set offs pursuant to the deed of facility and variation.

The content of the Counterclaim was also subject to my determination as to whether a claim for statutory misrepresentation (that is to say a claim for damages for misrepresentation pursuant to section 2(1) of the Misrepresentation Act 1967), contained in both the original and the proposed amendment to the Particulars of Claim, was a claim with realistic prospects of success, or whether it should be struck out, as doomed to failure, or made the subject of an order for Part 24 summary judgment in favour of NFF, by reason of the provisions of the Entire Agreement clause set out in paragraph 12 of the share purchase agreement. This judgment relates to that question.

The misrepresentation alleged, as set out in paragraphs 48 to 50 of the proposed amended Particulars of Claim, was said to be contained in a spreadsheet lodged in the virtual data room created by NFF in order to enable NF to carry out its due diligence in relation to its intended purchase of the shares in the Club pursuant to the share purchase agreement. That spreadsheet purported to identify the liabilities of the Club, as defined in the share purchase agreement, as at 31^st December 2016 (referred to in the share purchase agreement as the Liability Statement Date), as being £6,566, 213.66. NF’s case is that, as at that date, the true liabilities of the Club, as defined in the share purchase agreement, were, in fact, £10,363,395 and, therefore, that the spreadsheet, upon which it claims to have relied in entering into the share purchase agreement, misrepresented the liabilities of the Club by an amount of £3,767,706, resulting in a recoverable loss to NF in that amount.

NFF’s answer to this claim, other than a denial of the facts, is that the share purchase agreement provides a contractual procedure, or scheme, for dealing with any misrepresentations as to the extent of the Club’s liabilities at the material date, that the Entire Agreement clause has to be read in that context and that, construed in that context, it is clear that the language of the Entire Agreement clause is intended to preclude any claim for misrepresentation of the Club’s liabilities, at the material date, other than a claim brought pursuant to the procedures in that regard set up by and contained in the share purchase agreement.

The key provision of the share purchase agreement, material to NFF’s contention, is clause 7.1.

By that clause, NFF agrees to indemnify NF and the Club against all losses suffered or incurred by NF or the Club ‘arising out of or in connection with the aggregate of’ the Club’s liabilities (as defined in the share purchase agreement) ‘being in excess of £6,600, 000 as at’ 31^st December 2016.

The figure of £6,600,000 is said to reflect and, as it seems to me, plainly does reflect a rounding up of the liability figure of £6,566,213.66, as at the Liability Statement Date, shown on the spreadsheet lodged in the virtual data room. Accordingly clause 7.1, provides NF and the Club with a complete contractual indemnity for all losses incurred by reason of any misstatement, or misrepresentation, of the Club’s liabilities, at that date, in circumstances where the true liability figure exceeds the rounded up figure.

In a similar fashion, clauses 7.3 and 7.4 provide an equivalent contractual indemnity, in the one case, in respect of losses suffered or incurred by reason of any misstatement, or misrepresentation, by NFF as to its shares in the Club, or as to its power to sell those shares and, in the other case, in respect of losses incurred by reason of any misstatement, or misrepresentation, by NFF, either as to the stated non-existence of any material contracts (as defined in the share purchase agreement) not lodged in the data room, or as to the stated lack of effect of the share purchase agreement, or the change of control of the Club, brought into being by the completion of the share purchase agreement, in giving rise to new obligations upon the Club to make payments to any person.

The relevance of there being existent material contracts which had not been lodged in the data room, or of there being additional liabilities of the Club arising out of the share purchase agreement, or the changes in control effected by the share purchase agreement, is that, in either case, those matters would, or could, have had the effect of increasing the Club’s liabilities beyond those disclosed by the documents lodged in the data room and in excess, in consequence, of the liability figure shown on the spread sheet.

Both in respect of clause 7.1 and clause 7.4, schedule 6 of the share purchase agreement sets up a contractual time limit upon claims and establishes a process whereby, within that time limit, claims must be notified in a particular manner, with a particular degree of detail as to the matter, or default, giving rise to the claim and with a bona fide estimate of the loss, where reasonably quantifiable, occasioned by the default in question. The core contractual limitation period is a period to 31^st December 2018. Where the claims pertain to tax, the time limit is extended to seven years from completion.

A similar seven year contractual time limit and a similar notification process is applied by schedule 6 to a further tranche of contractual indemnity claims, pursuant to clause 7.2 of the share purchase agreement, potentially arising out of the loans made to the Club by Mr Al-Hasawi. A further, but different contractual limitation period, is applied by clause 6 of the share purchase agreement in respect of so-called Leakage Claims; that is to say claims in respect of payments (other than certain permitted payments) flowing from the Club to NFF in the period between the Liability Statement Date and completion of the share sale. Schedule 6 of the share purchase agreement also purports to provide a claims ceiling in respect of a number of the types of claim postulated by the share purchase agreement, including claims under clause 7.1 and 7.4.

The foregoing, without purporting to constitute anything like a full analysis of the share purchase agreement, 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.

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 to place 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 those 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.

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.

Clause 12 of the share purchase agreement provides as follows;

The question arising is whether, viewed in the context that I have sought to describe and in circumstances where the share purchase agreement, itself, affords a contractual indemnity in respect of any losses incurred by NF arising out of any misstatement by NFF of the Club’s liabilities at the Liability Statement Date, where the true liabilities exceed those stated (as rounded up) in the very document which is said to give rise to the statutory misrepresentation claim, the terms of the Entire Agreement clause are intended to preclude a parallel claim in statutory misrepresentation, arising, essentially, out of the same facts, or whether, as submitted by NF, the Entire Agreement clause, does not, on its true construction, operate to expressly provide that such a claim is excluded, such that such a parallel claim can continue, in accordance with clause 20 of the share purchase agreement.

Under clause 20 and ‘(e)xcept as expressly provided in (the share purchase agreement)’, the rights and remedies provided under the agreement are ‘in addition to and not exclusive of any rights or remedies provided by law’.

In consequence and unless expressly excluded by clause 12, NF’s rights under the share purchase agreement would be additional to any right of NF to raise a claim in statutory misrepresentation and not in substitution for such a right.

NF’s case is that the Entire Agreement clause, notwithstanding any relevant contractual context, does not have the effect of excluding the statutory misrepresentation claim, in that the Entire Agreement clause does not expressly provide, as required by clause 20, that such a claim be excluded.

In essence, what is said, by counsel Mr Baradon, on behalf of NF is that the language of clause 12, although that clause purports to provide that the share purchase agreement extinguishes all previous representations, is, nonetheless, not sufficiently widely drawn as to exclude a claim in statutory misrepresentation. In this regard, he submits, in reliance upon and by reference to the decision of the Court of Appeal, in AXA Sun Life Services Plc v Campbell Martin Ltd and Others [2012] Bus. LR 203, that the language used in clause 12, in describing the classes of matters superseded, or extinguished, by that clause and displaced by the share purchase agreement, limits the effect of the clause to matters of a contractual nature and, in consequence and in the context of this discussion, that the effect of clause 12, in this case, is only to supersede, or extinguish, any representations of a contractual nature which might have been made by, or between, the parties prior to the execution of the share purchase agreement and is not apt, accordingly, to displace, or exclude liability for misrepresentation.

AXA, itself, as inevitably acknowledged, by both Stanley Burnton LJ and Rix LJ, who gave the two judgments in the Court of Appeal, is only authority for the construction of the particular entire agreement clause in that case. Likewise, as Stanley Burnton LJ made clear, at paragraph 35 of his judgment, the construction of a particular clause must also be determined (as I have already indicated) in the context of the agreement as a whole.

All that said, there is no doubt but that, in AXA, Rix LJ, having considered the relevant jurisprudence, sought to state, at paragraph 94, what he described as themes deserving of recognition in the construction of clauses which are said to exclude liability for misrepresentation. The first theme is that an exclusion of liability for misrepresentation must be clearly stated. The second is that, conventionally, that is achieved by the use of well-established formulations, such as those clauses which record that no representations have been made, or that no representations have been relied upon, or, simply, that there is to be no liability for misrepresentation. In the absence of such formulations and, particularly, where the word ‘representations’ takes its place alongside words expressive of contractual obligation and where the clause talks of the parties’ contract superseding prior agreement, such a clause will not, by itself, operate to absolve one party in respect of a claim for misrepresentation which would otherwise be made out.

The foregoing affords helpful and authorative guidance as to the construction of clauses of the type with which I am concerned in this case. It makes plain, to the extent that it is necessary for it to do so, that clauses which have as their intent the object of ensuring that any prior, or collateral, contractual arrangements between the parties are subsumed in and superseded by the contract of which the clause in question forms a part and that such a clause will not, of itself and without more, have the effect of excluding liability for misrepresentation, but, rather, that the court’s expectation, if such liability is intended by the parties to be excluded, is that that exclusion will be separately and clearly provided for in the relevant provision.

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 a contract must always be a matter of the construction of the particular clause set in its particular context.

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 NF’s right to make such a claim.

It seems to me that the deliberately wide language used in clause 12, read in the 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.

In regard to the language of clause 12, bearing upon that intention, 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 be matters of a contractual nature, or intended, therefore, to exclude only claims which might arise out of, or be based upon, prior, informal, or collateral, agreements made between the parties in respect of the subject matter of the share purchase agreement.

The matters said to be superseded or extinguished by clause 12 are expressed in the widest terms. They include matters of a potentially contractual nature, such as ‘drafts’, agreements’, ‘understandings’, ‘promises’ and ‘warranties’. They also, however, 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, or could, 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.

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 non-contractual nature. In these 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 embrace something less than its usually understood legal meaning.

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 its more usual meaning.

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 that 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.

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.

That this is the intended construction and meaning of the words used and is not an over-literalist, or, from the perspective of NF, an over-severe analysis of clause 12 (such as to raise the inference that that construction could not have been intended or agreed) is supported, as already discussed, 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, their 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.

I do not think that this construction renders clause 20 a dead letter. Clause 12 is designed to preclude, or limit, claims in collateral contract, or misrepresentation, of the kind which may classically arise where lengthy and complicated negotiations result in an ultimate formal agreement. It does not seek to preclude claims of a different nature and clause 20 is confirmatory of that fact.

In the result and although the mechanism used to exclude claims in misrepresentation, in this case, does not fall, squarely, within the conventional formulations mentioned by Rix LJ in AXA, I am satisfied that the true, clear and express effect of clause 12 is to exclude claims in misrepresentation.

The consequence of that conclusion is that NF’s claim in statutory misrepresentation is not preserved by clause 20 of the share purchase agreement and is expressly excluded by clause 12 of the agreement. Accordingly, there being no realistic prospect of the claim in statutory misrepresentation succeeding, I propose to strike out the claim as doomed to failure and to give Part 24 judgment in favour of NFF on that claim.