Entire agreement clauses are common boilerplate provisions used with the intention of limiting the parties' rights and obligations to the provisions contained within the contract. But will they also enable parties to exclude implied terms and liability for misrepresentations? The recent decision by the Court of Appeal in AXA Sun Life v Campbell Martin and others 1 is a useful reminder for contract drafters of the limitations of using boilerplate entire agreement clauses and the importance of using clear and unequivocal wording when drafting exclusion clauses.
Background to the AXA Sun Life dispute
The dispute related to provisions in standard form contracts entered into between AXA Sun Life Services plc ("AXA") and it's appointed representatives (Campbell Martin and others, "Campbell Martin"). The contracts had been terminated and AXA was claiming for outstanding sums allegedly due. In their defence, Campbell Martin alleged that their respective contracts with AXA incorporated certain implied terms imposing obligations on AXA, and that they were induced to enter into those contracts by negligent and fraudulent misrepresentations and/or by collateral warranties given by AXA. Campbell Martin alleged that AXA had caused them loss and damage by its breach of the implied terms, by its misrepresentations and by its breach of the collateral warranties.
AXA asked the Court of Appeal to determine as a preliminary issue whether the entire agreement clauses in the contracts prevented Campbell Martin from bringing claims based on misrepresentation, breach of collateral warranties and/or implied terms.
The entire agreement clauses provided as follows:
"This Agreement … constitute[s] the entire agreement and understanding between you and us in relation to the subject matter thereof. Without prejudice to any variation … 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 …"
Exclusion of liability for misrepresentation
AXA submitted that the wording "this Agreement shall supersede any prior promises, agreements representations …" etc operated to exclude liability for misrepresentations, whether as to the terms of the contract or otherwise. The Court of Appeal disagreed. While stressing that this was a question of looking at the precise words used and indeed the agreement as a whole in each case, the Court drew comparisons with similarly worded provisions considered in previous authorities and concluded that clauses which simply refer to the parties' contract superseding all prior agreements would not alone be enough to absolve a party of a proven misrepresentation. While the Court acknowledged that the word "representations" was used in the clause, it concluded that, given that the whole of the clause was concerned with what had been agreed between the parties rather than misrepresentations, and that there was no mention of "misrepresentations", that the clause did not effectively exclude liability for misrepresentation of any kind. Rather, for exclusions of liability for misrepresentation to be effective they have to be clearly stated. It suggested that this could be done by way of any of the following:
- a clause stating the parties' agreement that there have been no representations made;
- a clause which states that there has been no reliance on any representations; or
- a clause which expressly excludes liability for misrepresentation.
It should be noted that clauses drafted along these lines are likely to be subject to a test of reasonableness under the Unfair Contract Terms Act 1977 ("UCTA"). The test requires that the term should have been "a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made"2.
Exclusion of liability for breach of collateral warranties and implied terms
It was accepted by the parties that, as a matter of construction of the entire agreement clause, it was effective to exclude collateral warranties. However, the parties disagreed as to whether the entire agreement clause was sufficient to effectively exclude any implied terms.
The Court of Appeal considered that the implied terms that Campbell Martin were seeking to rely on were ones that should be implied in order to give business efficacy to the contracts. As such, the Court of Appeal regarded them as intrinsic provisions of the contracts and therefore they fell within the wording "This Agreement and the Schedules and documents referred to therein …" of the entire agreement clause. Accordingly, such implied terms required to give business efficacy to the contracts were not excluded and Campbell Martin could rely on them. Had, on the other hand, Campbell Martin been relying on terms which might be implied as a result of matters extrinsic to the written agreements, such terms might have been effectively excluded by the entire agreement clause. Unfortunately, the Court did not elaborate on what it meant by such "extrinsic" matters, but it would seem that they must have had in mind terms which require extrinsic facts to be proved rather than those that can be implied without the need to find such facts. For construction contracts, an example might be as to whether the programme was to be regarded as a contract document.
The lessons which we can take from this judgment are:
- The meaning of any particular entire agreement clause will depend on the precise words used and the background of the contract.
- Entire agreement clauses are exclusion clauses and will be construed strictly. Therefore, clear words are necessary to exclude terms, agreements and understandings that would otherwise apply
- A boilerplate entire agreement clause providing that the agreement contains the whole agreement of the parties relating to the subject matter of the agreement, and supersedes all previous agreements, will usually be sufficient to preclude claims based on oral promises, collateral warranties and implied terms extrinsic to the contract.
- Such boilerplate entire agreement clauses will not, however, by themselves prevent a party from claiming that it was misled into signing the agreement due to a misrepresentation of fact.
- If you want to exclude liability for misrepresentation of fact then you must expressly say so.