What are Entire Agreement Clauses?
Entire Agreement clauses will feature in most if not all drafted contracts. They are often described as a boilerplate clause and rarely are they subject to much, if any, scrutiny at the drafting stage.
The intention and purpose behind Entire Agreement clauses is to restrict or limit (insofar as the law allows) the parties to the express terms of agreement recorded or referred to in the written agreement itself. Or, in other words, to prevent the parties to a written agreement from claiming that statements made during the contract negotiations (but not recorded or referred to in the written agreement) form part of or are additional terms to those properly recorded.
The inclusion of an Entire Agreement clause is therefore to try and ensure contractual certainty – a sensible and readily understandable proposition for the parties. That is the case of course until something goes wrong. Generally, at that point, the complaining party will look to argue that misrepresentations were made in pre-contract negotiations (that induced them to enter into the contract) or that a relevant term was omitted and should be implied into the contract. As such, they have been the subject of much litigation and judicial analysis.
These clauses comprise two basic elements:
(a) a statement that the terms of the contract are those contained in the written document alone
(b) a statement that the parties have either not relied on any representations made in pre-contract negotiations or a statement mutually excluding liability for any misrepresentation (save for a fraudulent one) or a statement limiting the remedies available if there was a misrepresentation.
The Courts have generally sought to interpret Entire Agreement clauses strictly. Their nature puts them into a category of clauses that limit the liability and remedies of the parties. Generally speaking therefore these clauses need to be clear in their drafting and effect.
That said, these clauses (as with all contractual clauses) will not be scrutinised by the Courts in isolation. The Judges will consider them in the context of the bargain agreed by the parties as a whole.
Entire Agreement Clause Case Study
This is illustrated by a recent decision of the High Court that stemmed from the sale of Nottingham Forest FC in May 2017. The contract in question was a Share Purchase Agreement that included an Entire Agreement clause, however, the clause in question did not include wording that expressly operated to exclude liability for misrepresentation.
The buyer brought a claim against the seller for misrepresentation as they alleged that the liabilities of the club had been falsely stated in pre-contract documentation.
The seller, for part of its defence, relied on the Entire Agreement clause.
The High Court held that even though the wording of the Entire Agreement clause did not expressly refer to misrepresentation claims, looking at the contract as a whole, the parties had clearly intended the entire agreement clause to cover misrepresentation claims. At first blush this appears contrary to the generally accepted approach to strictly interpret clauses excluding liability (remember if you want to exclude liability be express and be clear).
However, on this particular occasion the seller was saved by the fact that the wording of the clause was quite wide so could be construed to exclude misrepresentation claims, but mainly because the contract elsewhere set out provisions to deal with misrepresentation claims. Thus misrepresentation claims not falling within those envisaged elsewhere in the contract were intended to be excluded.
Although the seller was able to rely on the Entire Agreement clause clearer drafting could have avoided the claim in the first place (be express and be clear).
In addition to operating to prevent misrepresentation claims, an Entire Agreement clause, on its face, appears to prevent the parties and the Court from implying terms into the contract – if the document is expressed to be the whole of the agreement there wouldn’t appear to be any scope to say that terms should be added.
However, the courts have been prepared to imply a term into a contractual document despite the existence of an Entire Agreement clause.
This is illustrated by a recent property case. In this case a café was let under a lease containing an Entire Agreement provision. There were however issues with unsafe electrical wiring. The tenant argued that she was entitled to rip up (rescind) the lease on the basis that the lease contained an implied term making the landlord responsible for the maintenance and repair of the electrical wiring. The landlord relied on the Entire Agreement clause to say there was no scope for an implied term to be added to the parties’ agreement.
Despite the existence and wording of the Entire Agreement clause, the Court of Appeal found in favour of the tenant.
The decision is explained again by exploring the nature and scope of the entire contractual document. On this occasion the Court of Appeal found that there was a “gap” in the drafting of the lease which contained no covenant in relation to the electrical supply. As such the Court of Appeal felt that the “gap” had to be filled and the existence of the Entire Agreement clause didn’t preclude them from doing that.
What is therefore clear from these cases is that while Entire Agreement clauses will be upheld and can therefore operate effectively to limit and restrict parties rights and liabilities to those matters expressly covered in the written document itself, each case will turn on not only the express wording of the Entire Agreement clause itself, but also on the wording, nature and effect of all the other terms of the agreement.
These cases illustrate that the mantra of being express and clear not only applies to the wording of the Entire Agreement clause itself, but to the contract as a whole.
To understand ‘Entire Agreement clauses’ a bit more, contact James Carpenter on 01582 731161 or by email at firstname.lastname@example.org.