Al-Hasawi v Nottingham Forest Football Club Ltd & Ors, Court of Appeal - Chancery Division, November 01, 2018, [2018] EWHC 2884 (Ch)

Resolution Date:November 01, 2018
Issuing Organization:Chancery Division
Actores:Al-Hasawi v Nottingham Forest Football Club Ltd & Ors
 
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Neutral Citation Number: [2018] EWHC 2884 (Ch)

Case No: CH_2018_000161

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

Date: 01/11/2018

Before :

HHJ DAVID COOKE

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Between :

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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

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Judgment ApprovedHHJ David Cooke:

1. 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.

2. 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.

3. 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.

4. 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.

5. 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.

6. 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.

7. 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.

8. 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. ''

9. 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...

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