In a recent Court of Appeal decision the court considered whether an entire agreement clause prevented a party from relying on misrepresentation as a defence to a claim for payment, and whether such a clause was reasonable for the purposes of the Unfair Contract Terms Act.

Key facts

AXA (an insurer) engaged various businesses as its appointed representatives to sell financial and general insurance products to customers. The terms of appointment were based on standard form agreements, under which AXA could recoup certain monies where the appointments were terminated.

The contracts included the following entire agreement clause:

This Agreement…constitute[s] the entire agreement and understanding between you and us in relation to the subject matter thereof…[and] shall supersede any prior promises, agreements, representations, undertakings or implications where made orally or in writing

The relevant appointments of the businesses were terminated by AXA, which then brought a claim against the businesses for monies allegedly due. The businesses claimed that they had been induced to enter into the appointments by misrepresentations on AXA’s part, which principally related to whether the businesses had to sell AXA’s products exclusively.

What is an entire agreement clause?

Entire agreement clauses are contractual provisions that the contract contains the whole agreement between the parties, and are usually drafted (as was the clause in the AXA case) to make it clear that the contract supersedes any previous agreements between the parties and any representations (e.g. promises or assurances) the parties may have made to each other in the run up to signing on the dotted line. These clauses often include an acceptance that the only remedy the parties will have is for breach of contract.

Entire agreement clauses are intended to give the parties certainty as to the terms of their contract, with the ultimate aim of limiting the costs of litigation (or other dispute resolution), or avoiding it altogether.

Where does the Unfair Contract Terms Act come in?

As the various contracts were based on AXA’s standard terms of business, section 3 of the Act applied. This section states that a party contracting on its standard terms cannot exclude or restrict any liability in respect of his breach unless the clause satisfies the test of reasonableness under the Act. The test is whether the clause is fair and reasonable having regard to the circumstances which were, or ought reasonably to have been, known to or contemplated by the parties when the contract was made.

A key question before the Court

Whether the entire agreement clause prevented the businesses from relying on AXA’s alleged misrepresentations in defence to a claim for payment of various sums and, as part of that decision, whether the clause was governed by, and satisfied the requirements of, the Unfair Contract Terms Act.

The Court’s decision

At the preliminary hearing the judge held that the entire agreement clause did not prevent the businesses from relying on misrepresentations in defence to AXA’s payment claim.

The Court of Appeal agreed, holding as follows:

  • The entire agreement clause did not exclude or supersede misrepresentations as to matters that were not the subject of terms of the agreement (e.g. a statement that AXA is the largest insurance provider in the country).
  • It follows that the entire agreement has no effect on misrepresentations of fact generally.
  • Lord Justice Rix said: ‘the language of “representations” and “supersede” is the language of defining contractual obligations rather than the language of excluding liability in misrepresentation’.
  • The Court applied the decision in BSkyB v HP Enterprise Services UK Ltd [2010], where Ramsey J held that the entire agreement clause did not exclude liability for non-fraudulent misrepresentation, saying: ‘clear words are needed to exclude liability for negligent misrepresentation’.
  • The entire agreement clause satisfied the test of reasonableness under the Unfair Contract Terms Act.
  • In considering whether the clause was reasonable under the Act, it was relevant that the parties were commercial organisations and the agreements were made in a commercial context, that the clause was familiar to the insurance industry, and that the clause was well signed posted in the contract itself.

Implications

The AXA case confirms that in order to exclude liability for misrepresentation, clear words are required. If, therefore, a party wishes to exclude liability for any pre-contractual misrepresentations, an entire agreement clause (or some other clause) should say in terms that there will be no liability in respect of errors or misleading information that may have been communicated by one party to another, at least where the communication was not dishonest. It is not enough to say that the contract “supersedes” any previous representations. Liability for misrepresentation must be specifically excluded.

Reference: Axa Sun Life Services Plc v Campbell Martin Ltd [2011] EWCA Civ 133