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Pre-Contract Misrepresentations: Are “Entire Agreement” Clauses Effective?

DATE: 23.06.2011

 

Introduction

In the recent case of FoodCo UK LP v Henry Boot Developments Ltd [2010] EWHC 358(Ch) (“FoodCo UK LP”), the efficacy of entire agreement clauses and non-reliance clauses was once again upheld by the English High Court. The inclusion of a “non-reliance” clause appeared to be the necessary step in allowing the defendants to escape liability for innocent and negligent misrepresentations. The decision therefore focused on the defendant’s potential liability for fraudulent misrepresentations, particularly in relation to statements made about the future.

The Facts

FoodCo UK LP was a case brought by the tenants of a motorway services facility seeking damages from the landlord defendant for alleged fraudulent misrepresentation. The representations in question related to the features of the planned motorway services facility development, in particular the extent of the motorway signage, the likely number of visitors and the facilities which the site would offer. The tenants claimed they were “tricked” into entering a lease of the premises based on these fraudulent representations. One such representation, included in the defendant’s marketing material and a third party report (the “Report”) on which the marketing material was based, had predicted 88,000 visitors a week on opening. The prediction proved wildly optimistic. Actual visitor numbers barely reached a tenth of the predicted number. On the basis of these inaccurate assessments, the Court had to consider:

“What had gone wrong? And is the landlord liable for what has turned out to be a commercial disaster for many of the tenants?”

The defendant sought to exclude its liability for these inaccurate predictions by relying on an entire agreement and non-reliance clause contained in the lease agreement which provided as follows:

“The Tenant acknowledges that it is entering into this Agreement on the basis of the terms hereof and not in reliance upon any representation or warranty whatsoever whether written or oral expressed or implied made by or on behalf of the landlord (save for written replies given by, the landlord’s solicitors to the enquiries raised by the Tenant’s solicitors) and the documents produced to the tenant’s solicitors prior to the date of this agreement”

The Court upheld the effectiveness of the entire agreement clause and further held that the effect of the non-reliance provision was to exclude liability for innocent and negligent misrepresentations. The Court’s interpretation of the clause confined the tenant’s potential claim to establishing that a fraudulent misrepresentation had been made by the defendant.

The Court found that none of the representations alleged to be fraudulent by the claimants were false when made. Crucially the Court found that the landlord believed them to be true and had reasonable grounds for such belief at the time they were made.

Finally, the Court analysed the existence of a duty to correct information which was provided to the tenants. It held that this duty would only arise if the landlord knew that it no longer had reasonable grounds for regarding the Report as reliable; or did not care whether it continued to have reasonable grounds for so regarding it. The Court concluded that it did not cross the mind of the landlord that their continued reliance on the Report was unreasonable.

Finding in favour of the landlord, the Court also commented that although the tenants had been the victims of a wildly optimistic forecast of visitor numbers, so too had the landlord. They paid a considerable sum of money to acquire the site and build it out and had suffered considerable loss as a result of the false predictions.

Conclusion

From a legal practitioner’s point of view this decision is particularly informative in a number of respects. Firstly, it illustrates how vital a well drafted entire agreement clause can be in the construction of a contract. The interpretation and effect given to the non-reliance clause shows it as a useful tool for evading liability based on innocent or negligent misrepresentations. Finally, it illustrates how difficult it is to prove fraudulent misrepresentation.

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