Entire agreement clauses are a regular feature in commercial contracts and, if drafted carefully, they can help to reduce uncertainty and prevent opportunistic claims. However, recent case law suggests that the Courts are willing to look behind entire agreement clause and Judges are giving considerable scope to their interpretation.
The purpose of entire agreement clauses was summarised by Lightman J in Inntrepreneur Pub Co Ltd v East Crown Ltd1 which was to:
“preclude a party to a written agreement from threshing through the undergrowth and finding in the course of negotiations some (chance) remark or statement (often long forgotten or difficult to recall or explain) on which to found a claim such as the present to the existence of a collateral warranty. The entire agreement clause obviates the occasion for any such search and the peril to the contracting parties posed by the need which may arise in its absence to conduct such a search. For such a clause constitutes a binding agreement between the parties that the full contractual terms are to be found in the document containing the clause and not elsewhere, and that accordingly any promises or assurances made in the course of negotiations (which in the absence of such a clause might have effect as a collateral warranty) shall have no contractual force, save insofar as they are reflected and given effect in that document.”
Inntrepreneur also found that entire agreement clauses do not preclude a claim in misrepresentation. Not all of the subsequent decisions have, however, agreed with Lightman J on the preclusion of collateral contracts.
Drawing on the latest case law and legal analysis on entire agreement clauses, we set out below key points as to why relying on boilerplate provisions can be a real risk.
Are you trying to exclude a claim for misrepresentation?
Even where an entire agreement clause specifically refers to prior representations, the Courts found in AXA Sun Life Services plc v Campbel Martin Ltd that liability for misrepresentation is not excluded2. Instead, clear words are needed to exclude misrepresentation and an entire agreement clause will often not have this effect. The detail will, therefore, be in the drafting. That said, in the recent case of NF Footbal Investments Ltd and another v NFCC Group Holdings Ltd and another3 the High Court held that an entire agreement clause in a share purchase agreement which consisted only of an entire agreement statement (ie it had no wording negating reliance or excluding liability) did exclude claims in misrepresentation. The decision in NF Footbal is unusual and can be distinguished from the Axa Sun Life case on its facts. The Master in NF Footbal did note Rix LJ’s decision in Axa Sun Life that an exclusion for misrepresentation must be clearly stated and that this can be achieved by a “no-representation clause” or “non-reliance clause” but he felt that as to whether misrepresentation could be excluded would very much depend on the context and construction of the clause in question.
Are you trying to exclude prior agreements?
If so, you will need to be specific. The Courts have found that the parties to an agreement could not have intended a very general entire agreement clause to overtake restrictive covenants contained in a previous agreement where there was no explicit reference in the entire agreement clause to those covenants4.
Do you want to preclude a claim based on a collateral contract?
The Courts have often found ways to give effect to collateral contracts. A collateral contract must be “in materially different and distinguishable terms” to the main agreement. Even if a collateral contract pre‑dates the main agreement, it may not be caught by an entire agreement clause if it is viewed as being “supplemental” to the main agreement and intended to run in parallel with it5.
Do not assume that your entire agreement clause will guarantee that the document will be regarded as the entire agreement.
Although an entire agreement clause may provide very persuasive evidence of the parties’ intention for a written document to contain the entire agreement between the parties, as to whether the document actually contains the entire agreement will ultimately be a question of fact and will depend upon the language used by the parties6.
Is your intention to try to prevent terms being implied on grounds of business efficacy?
The rationale for implying terms for business efficacy means that the implied term is already part of the agreement and so it cannot be precluded by an entire agreement clause. If the entire agreement clause is drafted sufficiently widely, however, it may preclude the implication of terms by custom or trade usage. The effect of an entire agreement clause on other implied terms, such as statute or a previous course of dealing, is uncertain7.
Will an entire agreement clause prevent a claim for rectification or mistake?
An entire agreement clause may have limited effect (or no effect) on a claim for rectification or mistake. Whilst it may be difficult to prove a continuing common intention, if there is an entire agreement clause, it appears to be generally accepted that an entire agreement clause will not preclude a claim for rectification or mistake.
Ultimately, the effect of an entire agreement clause will be a question of interpretation, drawing on the facts and circumstances of a particular case as well the intention of the parties. An entire agreement clause should, therefore, no longer be considered as a standard boiler plate clause. It is critical for those drafting agreements to consider the implications of an entire agreement clause and to tailor the drafting of such clauses to govern the objective intended.