An entire agreement clause is a clause which tries to prevent the parties to a contract from claiming that statements made before they concluded the contract have contractual effect, even when those statements do not form part of the contract. It is one of many clauses used on a regular basis, and known as a “boilerplate” clause.
The question arises as to what the component parts of such a clause are and what the parties are trying to cover in writing it into the contract. An entire agreement clause may say:
- All terms agreed are found in the contract
- The parties have no liability to each other for representations made prior to the contract unless those representations are warranties in the contract
- The parties have no liability to each other for misrepresentation apart from fraud
- All non-contractual remedies are excluded
Clauses of the type identified in point 1 above generally are enforceable. It is therefore important to ensure that all documents and statements are included or incorporated into the contract. This includes tender documents and contractors’ proposals. If oral representations are to be relied on they must be codified in the contract as a warranty or contractual representation.
In relation to the points set out at 2, 3 and 4 above, the question arises as to whether they constitute an exclusion of liability for the purposes of Section 3 of the Misrepresentation Act 1967. If they do, then they must be reasonable as set out in Section 11(1) of the Unfair Contract Terms Act 1977.
The cases of Springwell Navigation Corp. -v- JP Morgan Chase Bank 2010 and Raiffeisen Zentralbank Sterreich AG -v- Royal Bank of Scotland 2010 gave some clarity on the provisions. The court in those cases stated that if the clause relates to whether there was a misrepresentation at all, then it is not covered by Section 3 as it is not an attempt to exclude a party’s rights and liabilities. Therefore, if the clause states, for example, that a procuring authority, in providing information, does not warrant the accuracy of that information then no statements, representations and warranties have been made and therefore Section 3 does not apply.
If however, the provisions try to exclude or restrict the liability of either party (so, for example, saying that any misrepresentations are not in fact actionable) then there would be an exclusion clause which fell within Section 3.
When considering both whether there is an exclusion clause and whether it is enforceable, the courts will take account of a number of circumstances, including:
- Whether the provision is common in the market?
- Are the parties of equal bargaining power?
- Is the clause obvious, in the contract from the start and not hidden away?
- Is one party in a better position to know the truth or otherwise of the representation?
- Has legal advice been given?
- Has the contract been specifically and individually negotiated?
Where the exclusion clause attempts to exclude liability for fraudulent misrepresentation, it will generally not be enforceable. On that basis it will generally be an exclusion clause that falls within Section 3 and, as such, unreasonable. It is therefore vitally important that when making representations you must have a genuine belief that what you say is true (as evidenced in the case of B Sky B -v- HP Enterprise Services UK Limited 2010).
In summary, therefore, entire agreement clauses can be useful, but you must ensure that they are reasonable and that they are geared towards the specific circumstances of the contract in question.