Six Continents Hotels Inc v Event Hotels GmbH

A party alleging fraudulent or negligent misrepresentation bears the burden of proving the constituent elements. Where recollections of old meetings conflict, contemporaneous documents and the overall probabilities may provide the surest guides. A contractual entire-agreement clause does not, without more, exclude liability for misrepresentation. However, a clear pre-contractual release and covenant not to sue may bar non-fraudulent misrepresentation claims and may satisfy the statutory requirement of reasonableness in a commercial agreement between experienced parties of equal bargaining power. Fraudulent misrepresentation cannot be excluded by contract.

Six Continents Hotels Inc claimed unpaid franchise and licence fees and contractual termination payments from Event Hotels GmbH under seven Holiday Inn-related agreements. Event accepted that substantial sums were prima facie due, but relied on a counterclaim alleging that representations about franchise fees had induced the final agreement and that the representations were fraudulent or negligent.

The court had to determine whether the representations were made, whether they were fraudulent, whether the agreements barred reliance on them, whether Event relied on them, and what loss was recoverable.

1. Misrepresentations not proved. Event failed to establish that the alleged representations were made. The witnesses for Event had uncertain or reconstructed recollections, while the contemporaneous correspondence did not record terms said to have been critical to the transaction. The commercial context also made the pleaded representations improbable. The claim therefore failed at the first issue.
2. Fraud and contractual exclusion. Fraud did not arise for determination. Nevertheless, the judge stated that, even if the representations had been made, the evidence would not have established that Mr Vermeer or Six Continents acted fraudulently.
3. Alternative contractual conclusion. An entire-agreement clause alone does not exclude liability for misrepresentation. Clause 19.12, however, was a clear covenant not to sue or assert claims based on pre-contractual discussions and agreements. Had the issue required determination, it would have barred claims for negligent or innocent misrepresentation. The clause was reasonable under section 3 of the Misrepresentation Act 1967, applying the reasonableness requirement in section 11(1) of the Unfair Contract Terms Act 1977. The parties were substantial commercial entities with professional advice and no inequality of bargaining power. Fraudulent misrepresentation could not have been excluded.
4. Earlier agreements and reliance. The judge also observed that representations made during negotiations for the Cologne City West agreement could not found a counterclaim concerning the six earlier agreements. Those agreements pre-dated the alleged representations and contained no relevant written variation.
5. Order. Six Continents was entitled to judgment for £859,144 in unpaid licence fees and £2,286,140.73 in contractual termination payments, with interest.