In the case of Thomas Witter Ltd v TBP Industries Ltd (unreported, 15 July 1994) the buyer of a carpet business sued the seller for misrepresentation and breach of warranty.

The sale agreement included a commonly used form of clause known as an entire agreement clause, intended to prevent the seller being liable to the buyer for any misrepresentation, unless the misrepresentation in question was contained or referred to in the written agreement.

Jacob J concluded that the clause was ineffective.Although the Witter case related to the sale of the assets of a business the decision is equally applicable to share sales, joint ventures, share subscriptions and other corporate transactions.

In the light of Jacob J's judgment in Witter it is necessary to reconsider clauses intended to exclude liability for misrepresentation in all these contexts.Jacob J's judgment also contained interesting dicta about the dividing line between fraudulent and negligent misrepresentation; s.2 of the Misrepresentation Act 1967; the effect of contractual limitation clauses (stipulating the time within which and the manner in which claims for misrepresentation and/or breach of warranty must be brought under the contract) and the application of the Unfair Contract Terms Act 1977 (UCTA) to such clauses; and the calculation of damages for breach of warranty and misrepresentation.This article, however, focuses on what Jacob J said about excluding liability for misrepresentation.The misrep resentations which were found to have been negligently made in Witter related to profit forecasts, budget estimates and management accounts given to the buyer by representatives of the sellers in the course of negotiations leading to the sale agreement.

In particular the profits disclosed by the management accounts were overstated by undisclosed deferrals of expenditure, and the cost charged in those accounts in respect of a non-recurring problem was also overstated.

As a result the buyer was misled about the level of profits which could be expected on a continuing basis, and hence about the value of the business being sold.The sale agreement contained an entire agreement clause in the following terms: 'This agreement sets forth the entire agreement and understanding between the parties or any of them in connection with the business and the sale and purchase described herein.

In particular but without prejudice to the generality of the foregoing, the [buyer] acknowledges that it has not been induced to enter into this agreement by any representation or warranty other than the [warranties and representations] contained or referred to in schedule 6.'The seller apparently argued that this clause prevented any liability for any misrepresentation whether pre-contractual or incorporated in the contract.

Perhaps not surprisingly the argument did not succeed.

The second sentence of the clause suggested positively to the judge that the buyer was induced to enter into the contract by representations contained in or referred to in sched 6.As to whether the clause excluded liability for pre-contractual misrepresentation, Jacob J found that it did not.

Browne-Wilkinson J (as he then was) had reached the same conclusion in Alman and Benson v Associated Newspapers (unreported, 20 June 1980) where only the first sentence of the clause set out above had been included in the agreement.In Alman and Benson Browne-Wilkinson J suggested, obiter, that such liability could be excluded by a clause acknowledging that the parties had not relied on any representations in entering into the contract.

That suggestion was apparently the basis of the second sentence of the entire agreement clause in Witter.Jacob J considered whether this sentence would preclude the buyer from saying that he had relied upon a misrepresentation of fact not included in sched 6 to the sale agreement.

He doubted whether it would do so because the point of exclusion of liability had not been made sufficiently explicit: 'It is perfectly possible to read the clause as doing no more than attempting to set out such representations as the [buyer] thinks he was relying on at the time.

He may have difficulty later in proof of any further representation, but if he can prove one, then his acknowledgement that there was no other may amount to no more than an acknowledgement of what he thought was the position at the time.'In any event Jacob J held that even if he were wrong on the meaning of the clause and it did have the purported effect of excluding liability or remedies for misrepresentation, it was deprived of that effect by s.3 of the Misrepresentation Act as substituted by s.8 of the UCTA.

This provides: 'If a contract contains a term which would exclude or restrict (a) any liability to which a party to a contract may be subject by reason of any misrepresentation made to him before the contract was made; or (b) any remedy available to such other party to the contract by reason of such misrepresentation, that term shall be of no effect except in so far as it satisfies the requ irement of reasonableness as stated in s.11(1) of [UCTA]; and it is for those claiming that the clause satisfies the test of reasonableness to show that it does so.'In relation to a contract term the requirement of reasonableness specified by UCTA for the purposes of s.3 of the Misrepresentation Act is that the term shall have been a fair and reasonable one to be included, having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made.Applying that test in Witter Jacob J said: 'I have to say that even if [the entire agreement clause] had exclusionary effect it would to my mind be neither fair nor reasonable.

The problem is its scope.

[S.11(1) of UCTA] calls for consideration of the term as such.'And it refers to "any liability" and "any misrepresentation".

It does not call for consideration of the term so far as it applies to the misrepresentation in question or the kind of misrepresentation in question.

The term is not severable: it is either reasonable as a whole or not.

So one must consider its every potential effect.

The clause does not distinguish between fraudulent, negligent, or innocent misrepresentation.

If it excludes liability for one kind of misrepresentation it does so for all.

I cannot think it reasonable to exclude liability for fraudulent misrepresentation - indeed [counsel for the seller] accepted it would not work in the case of fraud.

It may well be, with a different clause, reasonable to exclude liability for innocent misrepresentation or even negligent misrepresentation.

But since the width of this clause is too great I would have held that it failed the requirement of reasonableness and so was of no effect.'This part of the judgment was clearly obiter.

However, sellers who are tempted to provide that the buyer will have no remedy in respect of fraudulent pre-contractual misrepresentation should bear in mind not only Jacob J's refusal in Witter to accept that it was reasonable to do so, but also the often repeated dictum of Lord Denning in Lazarus Estates v Beasley [1956] 1 QB 702: 'No court in this land will allow a person to keep an advantage which he has obtained by fraud...Fraud unravels everything...it vitiates judgments, contracts and all transactions whatsoever...' Any provision purporting to exclude liabilities or remedies for fraudulent misrepresentation should be clearly severable.Jacob J put forward his own views on how an effective exclusion of remedies for non-fraudulent pre-contractual misrepresentation should be drafted, suggesting that if 'it said, for instance, "The [buyer] agrees that he will have no remedy in respect of any untrue statement made to him upon which he relied in entering this contract and that his only remedies can be for breach of contract" the clause would probably have done the job'.In practice, however, buyers may wish to have the right to sue for damages for misrepresentation in respect of misrepresentations contained in the contract, as well as for breach of warranty.The measure of damages for each is different and it may not be possible to tell when the contract is entered into which measure will be most favourable to a buyer in any particular case.

If a seller agrees to include both representations and warranties in the contract he is likely to want to exclude any right for a buyer to rescind for misrepresentation, irrespective of whether the misrepresentation is set out in the contract or made before the contract is entered into.A specimen clause excludi ng liability for pre-contractual statements which endeavours to take account of these factors is set out below.

This is, of course, only one element of the protection a seller or warrantor will want to build into the relevant agreement.Sellers should also try to erect a further line of defence by getting their buyers to acknowledge that they have not relied on any statements not included in the contract, although in view of what Jacob J said in Witter sellers should not rely on this as their only defence.'The buyer irrevocably and unconditionally waives any right it may have to claim damages for any misrepresentation [whether or] not contained in this agreement or for breach of any warranty not contained in the agreement unless such misrepresentation or warranty was made fraudulently and/or to rescind this agreement.' The words in square brackets should be excluded if the seller has conceded that the buyer is to have a right to sue for damages for misrepresentation in respect of misrepresentations contained in the contract, as well as for breach of warranty.