An update on previous finance stories from 2018

Welcome back to all of our readers from the Stevens & Bolton LLP Banking & Finance team.

We hope you are looking forward to a prosperous and successful 2019. In the coming weeks and months ahead, we will be doing our best to keep you up to date on the latest legal developments in the world of banking and finance.  But before we get too far ahead of ourselves, we wanted to pick up on a couple of items we reported on last year which merit an update. Please read further below.

1. Now in play – The Business Contract Terms (Assignment of Receivables) Regulations 2018

In July[1] last year we reported on the revised draft of these Regulations which have now come into effect and apply to contracts entered into on or after 31 December 2018[2]. As we reported at the time, the intention behind the Regulations is to facilitate access to invoice finance for small and medium sized businesses by nullifying terms in contracts which prohibit or restrict the assignment of receivables.

The Regulations as enacted follow much the same form as the draft Regulations we reported on last year. Regulation 2 provides that terms in business contracts that prohibit or restrict the assignment of receivables shall have no effect, but this is subject to Regulations 3 and 4. Regulation 3 states that the Regulations do not apply if the person to whom the receivable is owed is a large enterprise or special purpose vehicle. Regulation 4 excludes various types of contacts from the scope of the Regulations. These include contracts for prescribed financial services (Regulation 4(a)) and contracts for the acquisition of a business (Regulation 4(i)). 

There has been some debate as to whether contracting parties wishing to avail themselves of the exceptions referred to above need to expressly state in their contracts that Regulation 2 does not apply. In particular, Regulation 4(i) requires the relevant contract to include “a statement to that effect”, however, it is not clear from the drafting what effect this is referring to – is it a statement that the contract is of the type set out in Regulation 4(i) (i.e. a contract for the sale of a business) or, more explicitly, a statement that Regulation 2 does not apply? In our view, in order to avoid any uncertainty and prevent contractual restrictions being undermined by the Regulations, it is preferable to include an express contractual provision that the agreement is for (or in connection with) the sale of a business and that Regulation 2 does not apply (where this is the desired position).

2. Entire agreement clauses may not exclude claims in misrepresentation in all cases

On the pitch Nottingham Forest have been enjoying mixed fortunes of late, but off the pitch the club found itself at the heart of a recent lawsuit as we reported on during August last year[3].

The High Court has recently allowed an appeal against the earlier grant of summary judgment, finding in favour of the appellant buyer and holding that an entire agreement clause contained within a share purchase agreement did not operate to preclude a claim in misrepresentation[4]. This was despite the fact that the relevant clause stated that the agreement “supersedes and extinguishes all previous discussions, correspondence, negotiations, drafts, agreements, promises, assurances, warranties, representations and understandings…whether written or oral, relating to its subject matter”.

The High Court determined that claims in misrepresentation could only be excluded by the inclusion of clear contractual wording. It did not follow that simply because a contract dealt in detail with the handling of one type of claim that all other claims are by implication intended to be excluded. Accordingly, the court held that the entire agreement clause in question did not prevent the appellant buyer from claiming under the Misrepresentation Act 1967.

The upshot seems to be that if there is a desire among contracting parties to exclude liability for specific types of claim, then it is best to spell that out precisely rather than leaving it to the courts to embark upon an interpretation exercise. In this particular case, what appears to have been missing from the contact in question was clear wording that the seller would have no liability for misrepresentation in respect of pre-contractual statements, and in the absence of such clear and unambiguous language the entire agreement provision failed to get the seller to the same position.