Published in Dechert's Commercial Matters March 2012

The main purpose of an entire agreement clause in a contract is to limit the parties' rights and obligations to the provisions contained in the relevant agreement. They operate to exclude liability for any pre-contractual statements which either party may have made to the other prior to signing on the dotted line (unless those statements are expressly repeated in the agreement).

Whether entire agreement clauses enable parties to exclude claims based on misrepresentation and/or implied terms has been the subject of numerous disputes. However, one recent Court of Appeal case, AXA Sun Life v Campbell Martin, has provided useful guidance on how to draft such clauses to ensure that no implied terms or pre-contractual negotiations will be construed as forming part of the contract.

AXA Sun Life Services plc v Campbell Martin Ltd and Others

AXA appointed agents to sell products under general retainer agreements containing a series of standard clauses. When the agreements were terminated, questions arose as to whether the entire agreement clause in each such retainer agreement was effective to exclude claims based on alleged:

  • misrepresentation;
  • breach of collateral warranties; and
  • breach of implied terms.

The entire agreement clause provided as follows:

"This Agreement ... constitutes the entire agreement and understanding between you and us... 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..."

It was accepted by the parties that the entire agreement clause was effective to exclude claims based on collateral warranties. However, the parties disagreed as to whether the clause was effective to exclude claims based on misrepresentation and any implied terms. The Court of Appeal held that:

  • the wording "this Agreement shall supersede any prior promises, agreements, representations..." did not exclude liability for misrepresentation. The Court concluded that the language of superseding representations within the context of an entire agreement clause could, at most, prevent those terms from taking effect as terms of the contract (endorsing the approach taken in the earlier case of BSkyB Ltd v HP Enterprise Services UK Ltd). The problem with the clause therefore was that it was concerned only with the terms of the contract (as the language of the clause only went so far as to state that representations had not become terms of the contract) and the clause did not actually state that liability for misrepresentation was excluded. An exclusion of liability for misrepresentation has to be clearly stated as such;
  • the entire agreement clause did not prevent terms from being implied where such terms were implied to give the agreements business efficacy (in the absence of specific exclusion). However, the entire agreement clause did have the effect of excluding terms that might otherwise have been implied as a result of matters "extrinsic" to the agreements; and
  • as the contracts were entered into on AXA's standard terms, the entire agreement clause was subject to a test of "reasonableness" (under the Unfair Contract Terms Act) on the basis that it was an attempt to exclude liability. However, having regard to the circumstances in this case, the clause satisfied this test.

Comment

The AXA case emphatically illustrates the need for careful drafting. Entire agreement clauses should not be considered to be simply boilerplate provisions as the meaning of any particular entire agreement clause will depend on the precise words used and the background of the agreement.

A well-drafted entire agreement clause should comprise a number of components: (a) the entire agreement statement itself; (b) wording excluding liability for pre-contractual representations (which was the subject matter of the AXA case); and (c) confirmation that there is no exclusion for fraudulent misrepresentation.

When drafting entire agreement clauses, parties should bear in mind that:

  • if the parties' intention is to exclude liability for pre-contractual misrepresentation, they should expressly say so;
  • an entire agreement clause will not automatically exclude implied terms necessary to make the contract work. Exclusion of implied terms is best achieved by clear wording to that effect. The parties should consider drafting a separate clause which expressly addresses implied terms and their exclusion from the agreement; and
  • entire agreement statements are considered exclusion clauses and, whilst they are likely to satisfy the applicable test of reasonableness, clear and unequivocal words are necessary to exclude terms, agreements and understandings that would otherwise apply.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.