The UK Court of Appeal recently considered in Axa Sun Life Services Plc v Campbell Martin Ltd1 whether an "entire agreement" clause prevented claims for misrepresentation, breach of collateral warranties and/or implied terms. Entire Agreement clauses are increasingly used in standard form commercial contracts. Such clauses can operate as an effective exclusion clause. They are intended to limit any claim to the four corners of the written contract2 regardless of what may have been said in negotiations. A typical clause will stipulate that the agreement is the entire agreement between the parties, to the exclusion of any other terms or representations prior to its execution. Such clauses are often seen as "boiler plate" but their scope may be more limited than parties appreciate. The Axa case is the latest example of the restrictive approach adopted by the Courts in construing such clauses, particularly in determining whether they exclude liability for pre-contractual misrepresentations3.
The facts of the Axa case
The claim concerned the effect of provisions in standard form agreements entered between AXA and the defendants4. AXA had appointed the defendants as authorised representatives to provide insurance products to customers.
The agreements provided that AXA could claw back commission paid to the defendant if customers cancelled the products. Further, upon termination of the agreement, the defendant was required to repay business benefit allowances provided by AXA. The agreement provided that any statement signed by AXA about the monies the defendant owed would, save for manifest error, be determinative and binding, and also precluded the defendant from asserting any credit, set-off or counterclaim against AXA.
The agreements also stated that:
"This Agreement... constitute(s) the entire agreement and understanding between you and us in relation to the subject matter thereof... this Agreement shall supersede any prior promises, agreements, representations, undertakings or implications, whether made orally or in writing between you and us relating to the subject matter of this agreement..."
On termination of the agreements with the defendants, AXA claimed the monies due. The defendants responded that the agreement incorporated implied terms imposing obligations on AXA, and that they had been induced to enter into the contract by negligent and fraudulent misrepresentations and/or collateral warranties by AXA. The defendants alleged that AXA was in breach of such implied terms and had caused the defendants loss and damage.
At the preliminary hearing, the judge found that:
- The entire agreement clause did not exclude liability for misrepresentation. Therefore the defendants could bring a claim or counterclaim based on such alleged misrepresentations.
- The exclusion of set-off clause was unenforceable because the respondents entered the agreement on the basis of misrepresentations by AXA, which rendered the whole agreement unenforceable.
- The conclusive evidence clause did not prevent the court from determining the true amount due to be paid by the defendants under the agreement in the absence of manifest error. The conclusive evidence clause was also unenforceable because the misrepresentations by AXA rendered the whole agreement unenforceable.
The judge did not need to determine whether the entire agreement clause was enforceable having regard to the reasonableness test in the Unfair Contract Terms Act 1977 (UCTA), because he had held that the whole agreement was unenforceable due to the misrepresentations by AXA.
AXA appealed these findings.
The Court of Appeal upheld the High Court ruling that the particular entire agreement clause did not exclude liability for misrepresentation. The Court also found that the entire agreement clause was ineffective to exclude terms being implied to give the contract business efficacy, but it did exclude collateral warranties and other implied terms. The Court did not follow the reasoning of the High Court judge in relation to the effect of a misrepresentation. Stanley Burnton LJ held that a misrepresentation does not render an agreement unenforceable, but may entitle the representee to rescind the agreement.
Rix LJ provided some guidance on the use of entire agreement clauses to exclude liability for misrepresentations. He found that the entire agreement statement in question was concerned with matters of agreement, and not with misrepresentation. The word "misrepresentations" did not appear in the entire agreement clause, and although the word "representations" did appear, he stated it was "completely sandwiched between words of contractual import, namely prior 'promises, agreements...undertakings or implications' ". Rix LJ held that the entire agreement clause did "not in terms state either that no representations have been made, or that no reliance has been placed on any representations, or that liability for (mis)representations was excluded: each of which is a traditional way in which potential liability for misrepresentations has been sought to be avoided". Such remarks seem to leave open the possibility that a more specific clause might succeed in excluding liability for misrepresentation, subject to meeting other requirements, such as being reasonable in accordance with section 3(2)(b)(i)5 of the UCTA. In that regard the Court held that the entire agreement clause was subject to the UCTA but also that it satisfied the reasonableness test in the UCTA. This was on the basis that the agreements were made between commercial organisations, and in a commercial context, and gave both sides certainty as to the terms of their contract.
The conclusive evidence clause was also found to be reasonable. The defendants could be expected to keep track of commission earnings and claw backs, and would be able to demonstrate that any statement by AXA, if incorrect, was subject to a manifest error.
However, the Court held that the exclusion of set-off clause was not mutual, and prevented an appointed representative who was owed commission from setting off what it was owed against its liability. In the absence of any explanation of AXA's requirement for that clause, it had not been shown to be reasonable for the purposes of the UCTA.
Commentary and drafting tips
The wording of the entire agreement clause must be very clear if it is to be effective in excluding liability for pre-contractual misrepresentations. However, even well-drafted entire agreement clauses are by no means "bullet-proof", as the case-law shows.
The Irish courts could well adopt a similar approach to the interpretation of such provisions. The reasonableness of any such provision could also be an issue in respect of many types of contracts under Irish law. The Irish Sale of Goods and Supply of Services Act 1980 (1980 Act) imposes a reasonableness test similar to that contained in the UK's UCTA6. Section 46(1) of the 1980 Act renders unenforceable any provision in an agreement which would exclude or restrict liability for misrepresentation, unless the provision can be shown to be "fair and reasonable".
The Axa decision indicates that in a business-to-business context, where there is relative equality of bargaining power and the clause has been negotiated7, a carefully drafted entire agreement clause is likely to be regarded as "fair and reasonable", thereby satisfying the statutory requirements of the UCTA, and similarly the 1980 Act8.
However Axa also shows that courts will interpret entire agreement clauses narrowly. The precise words used and the facts of the case will be critical to the court's decision on any such clause. In particular, courts will be slow to uphold a clause that purports to exclude liability for fraudulent misrepresentation9.
When drafting an agreement, it may be advisable in the light of Axa to avoid relying solely on an entire agreement clause to exclude liability for misrepresentation. It may be appropriate to also include a carefully worded clause expressly excluding liability for misrepresentation. However, it is important to recognise and accept the inherent limitations of all such clauses.