Pay attention to the initial drafting of any legal document. Initial drafting on a deal

Image credit: Thoroughlyreviewed 

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Imagine: into a gallery walks a well-known collector. Well-known for his spending, he is equally notorious for being difficult and litigious. So, there are mixed feelings as he approaches.

Things go well. He asks an awful lot of questions about a particular picture and proceeds to purchase. Concerns remain, however, in view of his reputation, his unending questions and the difficulty in answering some of them. The fact is there are some uncertainties about the picture’s provenance, though the gallery owner answers as best he can.

The deal is sufficiently important for a short contract to be drawn up.

Should such a scenario occur, some helpful advice to the concerned gallery owner on the contract’s content would be as follows: it would be a good idea to include an ‘entire agreement’ clause.

This is a clause that restricts the parties’ rights and liabilities to anything contained within, but only contained within, the agreement made between them. The document is intended to contain the ‘entire agreement’ between them. It sounds straightforward enough but, of course, nothing is ever that straightforward in the law.

Case example

A recent case provides a perfect example of the care that needs to be taken, and the drafting difficulties that can occur.

In Al-Hasawi v Nottingham Forest Football Club (2018), Al-Hasawi (‘the buyer’) was negotiating the purchase of shares in the club from the club (‘the seller’).

The club provided a spreadsheet setting out the club’s liabilities at £6.6m.

However, the buyer’s claim, after the deal was done, was that at the relevant date the club’s liabilities were, in fact, in excess of £10m, or “very substantially more than stated in the spreadsheet”, as the judge politely put it.

We may speculate that Mr Al- Hasawi was rather more blunt.

The buyer pursued a claim in misrepresentation against the club for the difference. The seller responded that they had an ‘entire agreement’ clause in the contract, which means that the pre-contract misrepresentation can’t be enforced.

It’s worth quoting the clause in full:

Clause 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 understanding between the parties relating to its subject matter.”

At the initial hearing before the High Court Master, the seller won its case. The buyer then appealed to the judge. Given the apparent explicit wording of the clause – “…the entire agreement… supersedes and extinguishes all previous discussions… representations and understandings” – many will be surprised to hear that the judge on appeal overturned the previous judgment and found in favour of the buyer – to his delight, one would assume, given the sums at stake.

Although the judgment is detailed and complex, the judge’s basic point was that the clause was just not clear enough in specifically excluding liability for the pre-contract misrepresentations.

The bottom line is that if you want to do that, you have to be crystal clear and as explicit as possible.

This judgment was given in October 2018. These issues can be very important for those in the art and antiques trade, as inevitably leading up to a deal, representations (and inadvertent misrepresentations) may be made in the negotiations, so often mostly oral.

If your gallery has a potential deal that is making you nervous, it is essential to get the drafting right if you want to sleep at night.

Milton Silverman is senior commercial dispute resolution partner at Streathers Solicitors LLP, London.