Many commercial agreements contain “entire agreement” clauses. Such clauses mean that nothing outside the contract is to be taken into account and the only terms that will apply to the relationship are those set out in writing. A recent case has highlighted that there are times when a Court will look outside of the written agreement, notwithstanding the existence of an entire agreement clause. 

In Lloyd v Sutcliffe [2007] EWCA Civ 153, Mr Lloyd had an option to acquire two former petrol station sites for residential development. Mr Lloyd orally agreed terms for buying the sites and Mr Sutcliffe was to carry out the development work. They would then share the profits equally. One project became delayed so that, when the written contract was finalised, reference was only made to the first site. The written contract contained an “entire agreement” clause.

Plans for the second site proceeded but the relationship between Mr Lloyd and Mr Sutcliffe broke down. Mr Sutcliffe claimed an interest in the second site, owned by Mr Lloyd.

The Court held that profit-sharing arrangements in relation to the development were not “dealt with” in the agreement at all and so the “entire agreement” clause did not bite. This was because the written contract only represented the entire agreement between the parties in relation to the matters dealt with in it.

The Court also found that the clause could only preclude reliance on extraneous matters that arose before the date of the agreement. On hearing the evidence, the Court was satisfied that the terms of the understanding regarding the sharing of profits of the second site had been repeated after the date of the agreement. In other words, Mr Sutcliffe was found to be entitled to the share of profits relating to the second site.

The lesson to be learned here, perhaps, is that an “entire agreement” clause may not be what it seems. Thought should be given to drafting such clauses to ensure that they accurately reflect the parties’ intentions and the realities of the situation.